urban-gro (UGRO) 10-K/A 2024 FY Annual report (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

(Amendment No. 2)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED December 31, 2023
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-39933

URBAN-GRO, INC.

(Exact name of registrant as specified in its charter)

Delaware	46-5158469
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

1751 Panorama Point, Unit G, Lafayette, CO	80026	(720) 390-3880
(Address of principal executive office)	(Zip Code)	(Registrant’s telephone number, Including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	UGRO	NASDAQ Capital Market

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes x No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes x No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. o Yes x No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller Reporting Company	x
		Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. o

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. o

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter on June 30, 2023 was $10,984,218.

As of February 18, 2025, the registrant had 12,696,557 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Annual Report on Form 10-K is incorporated by reference from the Registrant’s definitive proxy statement relating to the 2024 Annual Meeting of Shareholders, filed on Schedule 14A with the Securities and Exchange Commission on April 25, 2024, as supplemented on May 7, 2024.

EXPLANATORY NOTE REGARDING THE RESTATEMENT

This Amendment No. 2 on Form 10-K/A (“Amendment No. 2”) is being filed to amend and restate urban-gro, Inc.’s (together with its wholly owned subsidiaries, the “Company”) Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“Original Filing”), filed with the U.S. Securities and Exchange Commission (“SEC”) on March 28, 2024 (“Original Filing Date”), as amended on April 25, 2024 on Form 10-K/A ("Amendment No. 1"). Amendment No. 1 was filed for the sole purpose to correct the previously filed Exhibit Index, which inadvertently did not incorporate by reference previously-filed exhibits or include a reference to the date, and the filing with which, such exhibits were previously filed and to file additional exhibits, which were inadvertently omitted from the Exhibit Index.

In filing this Amendment No. 2, we are restating our previously issued audited Consolidated Financial Statements as of and for the fiscal years ended December 31, 2023 and 2022, as well as the related unaudited condensed consolidated interim financial information for each of the quarters within fiscal years ended December 31, 2023 and 2022 (collectively, the “Affected Periods”) to account for certain adjustments discovered during the Company’s re-audit of its financial statements for the Affected Periods. Those previously issued financial statements for the Affected Periods should no longer be relied upon. In addition, we intend to file an amendment to our Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2024 (such report, together with this Amendment No. 2, the “Amended Reports”), originally filed with the SEC on April 30, 2024. All material restatement information will be included in the Amended Reports, and we do not intend to separately amend other filings that we have previously filed with the SEC.

Accordingly, investors and other readers should rely only on the financial information and other disclosures regarding the periods described above in this Amendment No. 2 and in any other future filings with the SEC (as applicable) and should not rely on any previously issued or filed reports, press releases, corporate presentations or similar communications relating to the periods described above.

    As required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Company’s principal executive officer and principal financial officer are providing new currently dated certifications required pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant Section 302 of the Sarbanes-Oxley Act of 2002, which are attached hereto.

Background of the Restatement

    As reported on our Current Report on Form 8-K filed with the SEC on May 6, 2024, the Company dismissed its previous independent registered public accounting firm, BF Borgers CPA PC ("BF Borgers") as a result of the SEC instituting public administration and cease-and-desist proceedings against BF Borgers.

As reported on our Current Report on Form 8-K filed with the SEC on May 29, 2024, the Company announced that it had appointed Sadler, Gibb & Associates, LLC ("Sadler Gibb") as its new independent public accounting firm.

As described in our Current Report on Form 8-K filed with the SEC on August 14, 2024, during a re-audit of the Company’s 2023 financial statements, Sadler Gibb identified accounting errors related to deferred tax liabilities associated with historical share-purchase acquisitions made by the Company. Accounting for the initial deferred tax liabilities associated with the acquisitions was determined to be proper, but due to losses incurred by the Company following the acquisitions, the majority of the deferred tax liabilities that were recorded in connection with the share-purchase acquisition of each acquired company should have been recorded as income tax benefits to the statement of operations shortly after each acquisition. The Company was amortizing these deferred tax liabilities to the statement of operations corresponding to the amortization of the intangible assets with which they were associated. Due to this misstatement, effective August 12, 2024, the Audit Committee of the Company's Board of Directors ("Audit Committee"), in consultation with the Company's management and with Sadler Gibb, determined that the Company's previously issued audited consolidated financial statements as of and for the years ended December 31, 2022 and December 31, 2023 (the “Year-End Financial Statements”), the Company’s previously issued unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2022, the three and six months ended June 30, 2022, and the three and nine months ended September 30, 2022 (the “2022 Interim Financial Statements”), the three months ended March 31, 2023, the three and six months ended June 30, 2023, and the three and nine months ended September 30, 2023 (the “2023 Interim Financial Statements”), and the three months ended March 31, 2024 (the “Q1 2024 Interim Financial Statements” and, together with the 2022 Interim Financial Statements and the 2023 Interim Financial Statements, the “Interim Financial Statements”) should no longer be relied upon and should be restated due to the foregoing accounting errors. Similarly, any previously issued or filed reports, press releases, earnings releases, investor presentations or other communications of the Company describing the Company’s financial results or other financial information relating to the periods covered by the Year-End Financial Statements or the Interim Financial Statements should no longer be relied upon. As Sadler Gibb continued their re-audit of the Year-End Financial Statements, additional accounting errors were identified that the Company determined needed to be corrected. Those corrections are included as part of this Amendment No. 2.

Restatement of Consolidated Financial Statements

This Amendment No. 2 includes both audited restated Consolidated Financial Statements and unaudited restated condensed consolidated financial information for the Affected Periods, as applicable. See Note 1A of “Notes to the Consolidated Financial Statements” in this Amendment for additional information on the audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022. See Note 20 of “Notes to the Consolidated Financial Statements” in this Amendment No. 2 for such unaudited restated condensed consolidated financial information for each of the quarters within fiscal years 2023 and 2022.

Internal Control Considerations

In light of the findings described above, the Audit Committee concluded that management’s report on internal control over financial reporting as of December 31, 2023 should no longer be relied upon. 

In connection with the restatement, management has also concluded that the Company’s disclosure controls and procedures for the Affected Periods were not effective because of material weaknesses in its internal controls over financial reporting. Refer to Item 9A. Controls and Procedures for additional details.

Items Amended in this Filing

This Amendment amends and restates the following items of the Original Report:

•Part I - Item 1A. Risk Factors

•Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

•Part II - Item 8. Financial Statements and Supplementary Data

•Part II - Item 9A. Controls and Procedures

•Part IV - Item 15. Exhibits and Financial Statement Schedules

In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), this Amendment includes new certifications specified in Rule 13a-14 under the Exchange Act, from the Company’s Chief Executive Officer and Chief Financial Officer dated as of the date of this Amendment. This Amendment No. 2 also contains a report of Sadler, Gibb & Associates, LLC on the Consolidated Financial Statements as of December 31, 2023, and 2022 and for the years ended December 31, 2023, and 2022 and a consent of Sadler, Gibb & Associates, LLC.

Pursuant to Rule 12b-15 under the Exchange Act, this Amendment contains only the items and exhibits to the Original Form 10-K that are being amended and restated, and unaffected items and exhibits are not included herein. This Amendment continues to describe the conditions as of the date of the Original Form 10-K and, except as set forth herein, we have not updated or modified the disclosures contained in the Original Form 10-K to reflect any events that have occurred after the Original Form 10-K. Accordingly, forward-looking statements included in this Amendment may represent management’s views as of the Original Form 10-K and should not be assumed to be accurate as of any date thereafter.

ITEM 1A. RISK FACTORS

An investment in our common stock involves a high degree of risk. You should carefully consider the following risks and all of the other information contained in this report before deciding whether to invest in our common stock. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. In that event, the trading price of our common stock could decline and you could lose all or part of your investment in our common stock. Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business and results of operations. Some statements in this report, including such statements in the following risk factors, constitute forward-looking statements. See the section entitled Cautionary Information about Forward-Looking Statements in Part I of this Report.

Risks Related to Our Operations

We have a relatively limited history of operations, a history of losses, and our future earnings, if any, and cash flows may be volatile, resulting in uncertainty about our prospects generally.

We were initially organized as a limited liability company in the State of Colorado on March 20, 2014. In March 2017, we converted into a corporation and on February 12, 2021, we completed an uplisting to Nasdaq under the ticker symbol "UGRO." The following is a summary of our recent historical operating performance:

•During the year ended December 31, 2023, we generated revenue of $69.9 million and incurred a net loss of $25.4 million.

•During the year ended December 31, 2022, we generated revenue of $66.3 million and incurred a net loss of $15.3 million.

Our lack of a significant history and the evolving nature of the market in which we operate make it likely that there are risks inherent to our business that are yet to be recognized by us or others, or not fully appreciated, and that could result in us suffering further losses. As a result of the foregoing, an investment in our securities necessarily involves uncertainty about the stability of our operating results, cash flows and, ultimately, our prospects generally.

We had negative cash flow from operations for the fiscal years ended December 31, 2023 and December 31, 2022.

We had negative cash flow from operations of $10.5 million for the fiscal year ended December 31, 2023 and $12.8 million for the fiscal year ended December 31, 2022. To the extent that we have negative cash flow from operations in future periods, we may need to allocate a portion of our cash reserves to fund such negative cash flow. We may also be required to raise additional funds through the issuance of equity or debt securities. We may not be able to generate positive cash flow from our operations and additional capital or other types of financing may not be available when needed or on terms favorable to us.

Our architecture, engineering, design, and construction management services have been used and may continue to be contracted for use in emerging industries that may be subject to quickly changing and inconsistent laws, regulations, practices and perceptions.

Although the demand for our architecture, engineering, design, and construction management services may be negatively impacted depending on how laws, regulations, administrative practices, judicial interpretations, and consumer perceptions develop, we cannot reasonably predict the nature of such developments or the effect, if any, that such developments could have on our business. We will continue to encounter risks and uncertainty relating to our operations that may be difficult to overcome.

We may continue to incur losses in the near future, which may impact our ability to implement our business strategy and adversely affect our financial condition.

While we are focused significantly on controlling our operating expenses by managing variable expenses, employee count, and marketing activities in order to become cash flow positive, these measures may adversely affect our future operating results if we are unable to support the business effectively. In turn, this would have a negative impact on our financial condition and potentially our share price.

We may not become profitable or generate sufficient profits from operations in the future. If our revenues do not continue to grow or our gross profits deteriorate substantially, we are likely to continue to experience losses in future periods. Collectively, this may impact our ability to implement our business strategy and adversely affect our financial condition. This potentially would have a negative impact on our share price.

To the extent that future net losses are in excess of additions to equity, we may fall below the Nasdaq's listing requirement of having a net equity balance of at least $2,500,000. If we fail to continue to satisfy this or any other continued listing requirements, Nasdaq will take steps to delist our common stock. Such a delisting would likely have a negative effect on the price of our common stock and would impair stockholders’ ability to sell or purchase our common stock when they wish to do so, as well as adversely affect our ability to issue additional securities and obtain additional financing in the future.

We may become subject to additional regulation of CEA facilities.

Our engineering and design services are focused on facilities that grow a wide variety of crops that are subject to regulation by the United States Food and Drug Administration and other federal, state or foreign agencies. Changes to any regulations and laws that could complicate the engineering of these CEA facilities, such as waste water treatment and electricity-related mandates, make it possible that potential related enforcement could decrease the demand for our services, and in turn negatively impact our revenues and business opportunities.

Competition in the various sectors in which we operate is intense.

There are many competitors in the industries in which we operate, including many who offer somewhat categorically similar professional services and equipment solutions as those offered by us. In the future other companies may enter this arena by developing solutions that directly compete with us. We anticipate the presence as well as entry of other companies in this market space and acknowledge that we may not be able to establish, or if established to maintain, a competitive advantage. Some of these companies have longer operating histories, greater name recognition, larger client bases and significantly greater financial, technical, sales and marketing resources. This may allow them to respond more quickly than us to market opportunities. It may also allow them to devote greater resources to the marketing, promotion and sale of their products and/or services. These competitors may also adopt more aggressive pricing policies and make more attractive offers to existing and potential clients, employees, strategic partners, distribution channels and advertisers. Increased competition is likely to result in price reductions, reduced gross margins and a potential loss of market share.

We depend upon third-party suppliers for the equipment solutions that we sell.

We depend on outside manufacturers for the equipment solutions that we sell. While we believe that there are sufficient sources of supply available, if the third-party suppliers were to cease production or otherwise fail to supply us with products in sufficient quantities on a timely basis and we were unable to contract on acceptable terms for these equipment type products with alternative suppliers, our ability to sell these solutions would be materially adversely affected. If a sole source supplier was to go out of business, we may be unable to find a replacement for such source in a timely manner or at all. If a sole source supplier were to be acquired by a competitor, that competitor may elect not to sell to us in the future. Any inability to secure required products or to do so on appropriate terms could have a materially adverse impact on the business, financial condition, results of operations or prospects of urban-gro.

We have historically depended on a small number of clients for a substantial portion of our revenue. If we fail to retain or expand our client relationships, or if a significant client were to terminate its relationship with us or reduce its purchases, our revenue could decline significantly.

Although we have been able to successfully generate substantial sales to different clients over time, we may not be able to continue to do this in the future. Our operating results for the foreseeable future could continue to depend on substantial sales to a small number of clients. Our clients have no purchase commitments and may cancel, change or delay purchases with little or no notice or penalty. As a result of this, our revenue could fluctuate materially and could be materially and disproportionately impacted by purchasing decisions of any client. Clients who represented a substantial portion of our historical revenue may decide to purchase products and services from other providers in the future, which could cause our revenue to decline materially and negatively impact our financial condition and results of operations. If we are unable to diversify our client base, we will continue to be susceptible to risks associated with client concentration.

A portion of our business depends on our clients obtaining appropriate licenses from various licensing agencies.

A portion of our business depends on our clients obtaining appropriate licenses from various licensing agencies. Any or all licenses necessary for our clients to operate their businesses may not be obtained, retained or renewed. If a licensing body were to determine that one of our clients had violated applicable rules and regulations, there is a risk the license granted to that client could be revoked, which could adversely affect future sales to that client and our operations. Our existing clients may not be able to retain their licenses going forward and new licenses may not be granted to existing and new market entrants.

System security risks, data protection breaches, cyber-attacks and systems integration issues could disrupt our internal operations or services provided to clients.

Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Computer programmers and hackers also may be able to develop and deploy viruses, worms, and other malicious software programs that attack or otherwise exploit any security vulnerabilities of the products that we may sell in the future. Such disruptions could adversely impact our ability to fulfill orders and interrupt other processes. Delayed sales, lower profits, or lost clients resulting from these disruptions could adversely affect our financial results, stock price and reputation.

We may be forced to litigate to defend our intellectual property rights, or to defend against claims by third parties against urban-gro relating to intellectual property rights.

We may be forced to litigate to enforce or defend our intellectual property rights, to protect our trade secrets or to determine the validity and scope of other parties’ proprietary rights. Any such litigation could be very costly and could distract our management from focusing on operating our business. The existence and/or outcome of any such litigation could harm our business.

We may not be able to successfully identify, consummate or integrate acquisitions or to successfully manage the impacts of such transactions on our operations.

Part of our business strategy includes pursuing synergistic acquisitions. We have expanded, and plan to continue to expand, our business by making strategic acquisitions and regularly seeking suitable acquisition targets to enhance our growth. Material acquisitions, dispositions and other strategic transactions involve a number of risks, including: (i) the potential disruption of our ongoing business; (ii) the distraction of management away from the ongoing oversight of our existing business activities; (iii) incurring indebtedness; (iv) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (v) an increase in the scope and complexity of our operations; and (vi) the loss or reduction of control over certain of our assets.

The pursuit of acquisitions may pose certain risks to us. We may not be able to identify acquisition candidates that fit our criteria for growth and profitability. Even if we are able to identify such candidates, we may not be able to acquire them on terms or financing satisfactory to us. We will incur expenses and dedicate attention and resources associated with the review of acquisition opportunities, whether or not we consummate such acquisitions.

Additionally, even if we are able to acquire suitable targets on agreeable terms, we may not be able to successfully integrate their operations with ours. Achieving the anticipated benefits of any acquisition will depend in significant part upon whether we integrate such acquired businesses in an efficient and effective manner. We may not be able to achieve the anticipated operating and cost synergies or long-term strategic benefits of our acquisitions within the anticipated timing or at all. The benefits from any acquisition will be offset by the costs incurred in integrating the businesses and operations. We may also assume liabilities in connection with acquisitions to which we would not otherwise be exposed. An inability to realize any or all of the anticipated synergies or other benefits of an acquisition as well as any delays that may be encountered in the integration process, which may delay the timing of such synergies or other benefits, could have an adverse effect on our business, results of operations and financial condition.

Risks Related to the Legal Cannabis Industry

To date, the majority of our revenues have come from providing architecture and engineering design services and selling equipment systems into facilities prior to the facility becoming operational. The majority of our revenues to date have been generated from clients that operate in the legal cannabis industry.

We are broadening our market reach beyond the legal cannabis industry and are placing a substantial sales effort on expansion into the rapidly growing non-cannabis CEA vertical farming sector as well as the Commercial sector. However, on a historic basis, the majority of our clients to whom we provide facility architecture and engineering design services and sell equipment systems prior to the facility becoming operational have primarily been in the legal cannabis industry. In addition to selling directly to these clients, we also sell our equipment solutions to third parties, such as general contractors and other intermediaries, like equipment leasing companies. The majority of these solutions have been resold into the legal cannabis industry. A significant decrease in demand in the legal cannabis industry could have a material adverse effect on our revenues and the success of our business.

The cannabis industry in the U.S. is an emerging industry and has only been legalized in some states while remaining illegal in others and under U.S. federal law. Federal Prohibition makes it difficult to accurately forecast the demand for our solutions in this specific industry. Losing clients from this industry may have a material adverse effect on our revenues and the success of our business.

The legal cannabis industry is not mature in the United States and has been legalized in only some states and remains illegal in others and under U.S. federal law, making it difficult to accurately forecast demand for our solutions. Revenues could materially decline if the U.S. Department of Justice ("DOJ") enforces federal law against the industry and some of our clients are negatively impacted.

The legal cannabis industry in the U.S. remains in state of flux, and many aspects of this industry’s development and evolution cannot be accurately predicted. Therefore, losing any clients could have a material adverse effect on our business. While we have attempted to identify our business risks in the legal cannabis industry, investors should carefully consider that there are other risks that cannot be foreseen or are not described in this Report, which could materially and adversely affect our business and financial performance.

As cannabis remains illegal under United States federal law, we may have to stop providing equipment systems and services to companies who are engaged in cannabis cultivation and other cannabis-related activities.

Cannabis, which is referred to as "Marijuana" in the Controlled Substances Act, is currently classified as a Schedule I controlled substance under the Controlled Substances Act and is illegal under United States federal law. It is illegal under United States federal law to grow, cultivate, sell or possess cannabis for any purpose or to assist or conspire with those who do so. Additionally, 21 U.S.C. 856 makes it illegal to "knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance." Even in those states in which the use of cannabis has been authorized under state law, its use remains a violation of federal law. Since federal law criminalizing the use of cannabis is not preempted by state laws that legalize its use, strict enforcement of federal law regarding cannabis may result in the inability of our clients that are involved in the cannabis industry to proceed with their operations, which would adversely affect our operations.

Our solutions are used by legal and licensed cannabis growers. While we are not aware of any threatened or current federal or state law enforcement actions against any supplier of equipment that might be used for cannabis cultivation, law enforcement authorities, in their attempt to regulate the illegal use of cannabis, may seek to bring an action or actions against us under the Controlled Substances Act for assisting or conspiring with persons engaged in the cultivation of cannabis.

There is also a risk that our activities could be deemed to be facilitating the selling or distribution of cannabis in violation of the Controlled Substances Act. Although federal authorities have not focused their resources on such tangential or secondary violations of the Controlled Substances Act, nor have they threatened to do so, with respect to the sale of equipment that might be used by legal and licensed cannabis cultivators, or with respect to any supplies marketed to participants in the medical and recreational cannabis industry, if the federal government were to change its practices, or were to expend its resources investigating and prosecuting providers of equipment that could be usable by participants in the medical or recreational cannabis industry, such actions could have a materially adverse effect on our operations and the sales of our products and services.

As a company with clients operating in the legal cannabis industry, we face many particular and evolving risks associated with that industry, including uncertainty of United States federal enforcement and the need to renew temporary safeguards.

The "FinCEN Memo" dated February 14, 2014, de-prioritizes enforcement of the Bank Secrecy Act against financial institutions and cannabis related businesses which utilize them. This memorandum appears to be a standalone document and is presumptively still in effect. At any time, however, the Department of the Treasury, Financial Crimes Enforcement Network, could elect to rescind the FinCEN Memo. This would make it more difficult for our clients and potential clients to access the U.S. banking systems and conduct financial transactions, which would adversely affect our operations.

In 2014, Congress passed a spending bill ("2015 Appropriations Bill") containing a provision ("Appropriations Rider") blocking federal funds and resources allocated under the 2015 Appropriations Bill from being used to "prevent such States from implementing their own State medical marijuana law." The Appropriations Rider seemed to have prohibited the federal government from interfering with the ability of states to administer their medical cannabis laws, although it did not codify federal protections for medical cannabis patients and producers. Moreover, despite the Appropriations Rider, the Justice Department maintains that it can still prosecute violations of the federal cannabis ban and continue cases already in the courts. Additionally, the Appropriations Rider must be re-enacted every year. While it has been continued every year since 2015, including most recently in 2022, continued re-authorization of the Appropriations Rider cannot be guaranteed. If the Appropriation Rider is no longer in effect, the risk of federal enforcement and override of state cannabis laws would increase.

Further legislative development beneficial to our operations is not guaranteed.

Among other things, the business of our clients in the legal cannabis industry involves the cultivation, distribution, manufacture, storage, transportation and/or sale of cannabis products in compliance with applicable state law. The success of our business with respect to these clients depends on the continued development of the cannabis industry and the activity of commercial business and government regulatory agencies within the industry. The continued development of the legal cannabis industry is dependent upon continued legislative and regulatory authorization of cannabis at the state level and a continued laissez-faire approach by federal enforcement agencies. Any number of factors could slow or halt progress in this area. Further regulatory progress beneficial to the industry cannot be assured. While there may be ample public support for legislative action, numerous factors impact the legislative and regulatory process, including election results, scientific findings or general public events. Any one of these factors could slow or halt progressive legislation relating to cannabis and the current tolerance for the use of cannabis by consumers, which could adversely affect our operations.

The legal cannabis industry could face strong opposition from other industries.

We believe that established businesses in other industries may have a strong economic interest in opposing the development of the cannabis industry. Cannabis may be seen by companies in other industries as an attractive alternative to their products, including recreational cannabis as an alternative to alcohol, and medical cannabis as an alternative to various commercial pharmaceuticals. Many industries that could view the emerging legal cannabis industry as an economic threat are well established, with vast economic and United States federal and state lobbying resources. Companies within these industries could use their resources to attempt to slow

or reverse legislation legalizing cannabis. Any inroads these companies make in halting or impeding legislative initiatives that would be beneficial to the legal cannabis industry could have a detrimental impact on our clients and, in turn on our operations.

The legality of cannabis could be reversed in one or more states.

The voters or legislatures of states in which cannabis has already been legalized could potentially repeal applicable laws which permit the operation of both legal medical and retail cannabis businesses. These actions might force us to cease operations in one or more states entirely.

Changing legislation and evolving interpretations of law, which could negatively impact our clients and, in turn, our operations.

Laws and regulations affecting the legal medical and adult-use cannabis industry are constantly changing, which could detrimentally affect our clients involved in that industry and, in turn, our operations. Local, state and federal cannabis laws and regulations are often broad in scope and subject to constant evolution and inconsistent interpretations, which could require our clients and ourselves to incur substantial costs associated with modification of operations to ensure compliance. In addition, violations of these laws, or allegations of such violations, could disrupt our clients’ business and result in a material adverse effect on our operations. In addition, regulations may be enacted in the future that will limit the amount of cannabis growth or related products that our commercial clients are authorized to produce. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our operations.

Regulatory scrutiny of the legal cannabis industry may negatively impact our ability to raise additional capital.

The business activities of certain of our clients rely on newly established and/or developing laws and regulations in multiple jurisdictions. These laws and regulations are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect our profitability or cause us to cease operations entirely. The legal cannabis industry may come under the scrutiny or further scrutiny by the United States Food and Drug Administration (the "FDA"), the SEC, the DOJ, the Financial Industry Regulatory Authority or other federal, state or nongovernmental regulatory authorities or self-regulatory organizations that supervise or regulate the production, distribution, sale or use of cannabis for medical or nonmedical purposes in the United States. The FDA currently is authorized to promulgate regulations for and oversight of CBD products. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding the industry that we service may adversely affect our business and operations, including without limitation, the costs to remain compliant with applicable laws and the impairment of our ability to raise additional capital.

Banking regulations could limit access to banking services.

Since the use of cannabis is illegal under federal law, federally chartered banks will not accept deposit funds from businesses involved with cannabis. Consequently, businesses involved in the legal cannabis industry often have trouble finding a bank willing to accept their business. The inability to open bank accounts may make it difficult for our clients in the legal cannabis industry to operate and their reliance on cash can result in a heightened risk of theft, which could harm their businesses and, in turn, harm our business. Additionally, some courts have denied legal cannabis-related businesses bankruptcy protection, thus, making it very difficult for lenders to recoup their investments, which may limit the willingness of banks to lend to our clients and to us.

A drop in the retail price of cannabis products may negatively impact our business.

The fluctuations in economic and market conditions that impact the prices of commercially grown cannabis, such as increases in the supply of cannabis and decreases in demand for cannabis, could have a negative impact on our clients that are legal cannabis producers, and therefore could negatively impact our business.

Our contracts may not be legally enforceable in the United States.

Many of our historic contracts, and those we may enter into in the future, relate to services that are ancillary to the legal cannabis industry and other activities that are not legal under U.S. federal law and under some state laws. As a result, we may face difficulties in enforcing our contracts in U.S. federal and certain state courts.

Risks Related to Ownership of Our Common Stock

Our stock price could be extremely volatile. As a result, shareholders may not be able to resell their shares at or above the price they paid for them.

The market price of our common stock may be highly volatile and could be subject to wide fluctuations. Volatility in the market price of our common stock, as well as general economic, market or political conditions, may prevent shareholders from being able to sell their shares at or above the price they paid for their shares and may otherwise negatively affect the liquidity of our common stock. Shareholders may experience a decrease, which could be substantial, in the value of their stock, including decreases unrelated to our operating performance or prospects, and shareholders could lose part or all of their investment. The price of our common stock has

been, and could continue to be, subject to wide fluctuations in response to a number of factors, including those described elsewhere in this Report and others such as:

•our ability to generate revenues sufficient to achieve profitability and positive cash flow;

•competition in our industry and our ability to compete effectively;

•our ability to attract, recruit, retain and develop key personnel and qualified employees;

•reliance on significant clients and third-party suppliers;

•our ability to successfully identify and complete acquisitions and effectively integrate those acquisitions into our operations;

•our actual or anticipated operating and financial results, including how those results vary from the expectations of management, securities analysts and investors;

•changes in financial estimates or publication of research reports and recommendations by financial analysts or actions taken by rating agencies with respect to us or other industry participants;

•developments in our business or operations or our industry sectors generally;

•any future offerings by us of our common stock;

•any coordinated trading activities or large derivative positions in our common stock, for example, a "short squeeze" (a short squeeze occurs when a number of investors take a short position in a stock and have to buy the borrowed securities to close out the position at a time that other short sellers of the same security also want to close out their positions, resulting in a surge in stock prices, i.e., demand is greater than supply for the stock sold short);

•legislative or regulatory changes affecting our industry generally or our business and operations specifically;

•the operating and stock price performance of companies that investors consider to be comparable to us;

•announcements of strategic developments, acquisitions, restructurings, dispositions, financings and other material events by us or our competitors;

•actions by our current shareholders, including future sales of common shares by existing shareholders, including our directors and executive officers;

•proposed or final regulatory changes or developments;

•anticipated or pending regulatory investigations, proceedings, or litigation that may involve or affect us; and

•the other factors described under Risk Factors in Part I, Item 1A of this Report.

In response to any one or more of these events, the market price of shares of our common stock could decrease significantly. In the past, securities class action litigation has often been initiated against companies following periods of volatility in their stock price. This type of litigation could result in substantial costs and divert our management’s attention and resources and could also require us to make substantial payments to satisfy judgments or to settle litigation.

Shareholders may be diluted by future issuances of preferred stock or additional common stock in connection with our incentive plans, acquisitions or otherwise; future sales of such shares in the public market, or the expectations that such sales may occur, could lower our stock price.

Our certificate of incorporation authorizes us to issue shares of our common stock and options, rights, warrants and appreciation rights relating to our common stock for the consideration and on the terms and conditions established by our Board in its sole discretion. We could issue a significant number of shares of common stock in the future in connection with investments or acquisitions. Any of these issuances could dilute our existing shareholders, and such dilution could be significant. Moreover, such dilution could have a material adverse effect on the market price for the shares of our common stock.

The future issuance of shares of preferred stock with voting rights may adversely affect the voting power of the holders of shares of our common stock, either by diluting the voting power of our common stock if the preferred stock votes together with the common stock as a single class, or by giving the holders of any such preferred stock the right to block an action on which they have a separate class vote, even if the action were approved by the holders of our shares of our common stock.

The future issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for our common stock by making an investment in the common stock less attractive. For example, investors in the common stock may not wish to purchase common stock

at a price above the conversion price of a series of convertible preferred stock because the holders of the preferred stock would effectively be entitled to purchase common stock at the lower conversion price, causing economic dilution to the holders of common stock.

We do not anticipate paying any cash dividends on our common stock in the foreseeable future.

We currently intend to retain our future earnings, if any, for the foreseeable future, to fund the development and growth of our business. We do not intend to pay any dividends to holders of our common stock in the foreseeable future. Any decision to declare and pay dividends in the future will be made at the discretion of our Board taking into account various factors, including our business, operating results and financial condition, current and anticipated cash needs, plans for expansion, any legal or contractual limitations on our ability to pay dividends under our loan agreements or otherwise. As a result, if our Board does not declare and pay dividends, the capital appreciation in the price of our common stock, if any, will be our shareholders only source of gain on an investment in our common stock, and shareholders may have to sell some or all of their common stock to generate cash flow from their investment.

If securities or industry analysts do not publish research or reports about our business, or if they downgrade their recommendations regarding our common stock, its trading price and volume could decline.

We expect the trading market for our common stock to be influenced by the research and reports that industry or securities analysts publish about us, our business or our industry. If no additional securities or industry analysts commence coverage of our company, the trading price for our stock may be negatively impacted. If one or more of our covering analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline and our common stock to be less liquid. Moreover, if one or more of the analysts who cover us downgrades our stock or publishes inaccurate or unfavorable research about our business, or if our results of operations do not meet their expectations, our stock price could decline.

Taking advantage of the reduced disclosure requirements applicable to "emerging growth companies" may make our common stock less attractive to investors.

We qualify as an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act"). An emerging growth company may take advantage of certain reduced reporting and other requirements that are otherwise generally applicable to public companies, as described above. We currently intend to take advantage of each of these exemptions. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make a comparison of our financial statements with the financial statements of a public company that is not an emerging growth company, or the financial statements of an emerging growth company that has opted out of using the extended transition period, difficult or impossible because of the potential differences in accounting standards used. We cannot predict if investors will find our common stock less attractive if we elect to rely on these exemptions, or if taking advantage of these exemptions would result in less active trading or more volatility in the price of our common stock.

Provisions of our certificate of incorporation and bylaws may delay or prevent a take-over that may not be in the best interests of our shareholders.

Provisions of our certificate of incorporation and bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our shareholders may be called, and may delay, defer or prevent a takeover attempt.

In addition, our certificate of incorporation authorizes the issuance of up to 3,000,000 shares of preferred stock with such rights and preferences determined from time to time by our Board. None of our preferred shares are currently issued or outstanding. Our Board may, without shareholder approval, issue preferred shares with dividends, liquidation, conversion, voting or other rights that could adversely affect the voting power or other rights of the holders of our common stock.

The requirements of being a public company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management and qualified Board members.

As a public company, we are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, and other applicable securities rules and regulations. Compliance with these rules and regulations involves significant legal and financial compliance costs, may make some activities more difficult, time-consuming or costly and may increase demand on our systems and resources, particularly after we are no longer an "emerging growth company," as defined in the JOBS Act. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants, which will increase our costs and expenses.

In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us, and our business may be adversely affected.

As a result of disclosure of information in this Report and in filings required of a public company, our business and financial condition are highly visible, which may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and adversely affect our business and operating results.

We are subject to ongoing regulatory burdens resulting from our public listing.

We continually work with our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial management control systems to manage our obligations as a public company listed on Nasdaq. These areas include corporate governance, corporate controls, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal controls over financial reporting. However, these and other measures that we might take may not be sufficient to allow us to satisfy our obligations as a public company listed on Nasdaq on a timely basis. In addition, compliance with reporting and other requirements applicable to public companies listed on Nasdaq creates additional costs for us and requires the time and attention of management. The additional costs that we incur, the timing of such costs and the impact that management’s attention to these matters may adversely affect our business and operating results.

We have identified material weaknesses in our internal control over financial reporting. If we fail to develop or maintain an effective system of internal controls, we may not be able to accurately report our financial results and prevent fraud. As a result, current and potential shareholders could lose confidence in our financial statements, which would harm the trading price of our common shares.

Companies that file reports with the SEC, including us, are subject to the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404. SOX 404 requires management to establish and maintain a system of internal control over financial reporting and annual reports on Form 10-K filed under the Exchange Act to contain a report from management assessing the effectiveness of a company’s internal control over financial reporting. Separately, under SOX 404, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, public companies that are large accelerated filers or accelerated filers must include in their annual reports on Form 10-K an attestation report of their regular auditors attesting to and reporting on management’s assessment of internal control over financial reporting. Non-accelerated filers and smaller reporting companies, like us, are not required to include an attestation report of their auditors in annual reports.

A report of our management is included under Item 9A. “Controls and Procedures.” We are a smaller reporting company and, consequently, are not required to include an attestation report of our auditor in our annual report. However, if and when we become subject to the auditor attestation requirements under SOX 404, we can provide no assurance that we will receive a positive attestation from our independent auditors.

During its evaluation of the effectiveness of internal control over financial reporting as of December 31, 2023, management identified material weaknesses as described under Item 9A. “Controls and Procedures.” We are undertaking remedial measures, which measures will take time to implement and test, to address these material weaknesses. There can be no assurance that such measures will be sufficient to remedy the material weaknesses identified or that additional material weaknesses or other control or significant deficiencies will not be identified in the future. If we continue to experience material weaknesses in our internal controls or fail to maintain or implement required new or improved controls, such circumstances could cause us to fail to meet our periodic reporting obligations or result in material misstatements in our financial statements, or adversely affect the results of periodic management evaluations and, if required, annual auditor attestation reports. Each of the foregoing results could cause investors to lose confidence in our reported financial information and lead to a decline in our share price.

General Risk Factors

We are highly dependent on our management team, and the loss of our executive officers or other key employees could harm our ability to implement our strategies, impair our relationships with clients and adversely affect our business, results of operations and growth prospects.

Our success depends, in large degree, on the skills of our management team and our ability to retain, recruit and motivate key officers and employees. Our senior executive leadership team has significant experience, and their knowledge and relationships would be difficult to replace. Leadership changes will occur from time to time, and we cannot predict whether significant resignations will occur or whether we will be able to recruit additional qualified personnel. Competition for senior executives and skilled personnel in the horticulture industry is intense, which means the cost of hiring, paying incentives and retaining skilled personnel may continue to increase.

We need to continue to attract and retain key personnel and to recruit qualified individuals to succeed existing key personnel to ensure the continued growth and successful operation of our business. In addition, as a provider of custom-tailored horticulture solutions, we must attract and retain qualified personnel to continue to grow our business, and competition for such personnel can be intense. Our ability to effectively compete for senior executives and other qualified personnel by offering competitive compensation and benefit arrangements may be restricted by cash flow and other operational restraints. The loss of the services of any senior executive or other key personnel, or the inability to recruit and retain qualified personnel in the future, could have a material adverse effect on our business, financial condition or results of operations. In addition, to attract and retain personnel with appropriate skills and knowledge to support our business, we may offer a variety of benefits, which could reduce our earnings or have a material adverse effect on our business, financial condition or results of operations.

Our insurance may not adequately cover our operating risk.

We have insurance to protect our assets, operations and employees. While we believe our insurance coverage addresses all material risks to which we are exposed and is adequate and customary in our current state of operations, such insurance is subject to coverage limits and exclusions and may not be available for the risks and hazards to which we are exposed. In addition, such insurance may not be adequate to cover our liabilities or may not be generally available in the future or, if available, premiums may not be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, or if we were to incur such liability at a time when we are not able to obtain liability insurance, our business, results of operations and financial condition could be materially adversely affected.

We may be exposed to currency fluctuations.

Although our revenues and expenses are expected to be predominantly denominated in United States dollars, we may be exposed to currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar, the Euro, and the currency of other regions in which we may operate may have a material adverse effect on our business, financial condition and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if we develop a hedging program, there can be no assurance that it will effectively mitigate currency risks.

Changes in accounting standards and subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect our financial results.

U.S. generally accepted accounting principles ("U.S. GAAP") and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of matters that are relevant to our business, such as, but not limited to, revenue recognition, stock-based compensation, trade promotions, and income taxes are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes to these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported results.

Our ability to maintain our reputation is critical to the success of our business, and the failure to do so may materially adversely affect our business and the value of our common stock.

Our reputation is a valuable component of our business. Threats to our reputation can come from many sources, including adverse sentiment about our industry generally, unethical practices, employee misconduct, failure to deliver minimum standards of service or quality, compliance deficiencies, and questionable or fraudulent activities of our clients. Negative publicity regarding our business, employees, or clients, with or without merit, may result in the loss of clients, investors and employees, costly litigation, a decline in revenues and increased governmental regulation. If our reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results and the value of our common stock may be materially adversely affected.

Increased attention to climate change and ESG matters may adversely impact our business.

We are subject to a variety of risks arising from ESG matters. ESG matters include increasing attention to climate change, climate risk, expectations on companies to address climate change, hiring practices, the diversity of the work force, racial and social justice issues involving the Company’s personnel, customers and third parties with whom it otherwise does business, and investor and societal expectations regarding ESG matters and disclosures.

Risks arising from ESG matters may adversely affect, among other things, reputation and the market price of our stock. Further, we may be exposed to negative publicity based on the identity and activities of those we do business with and the public’s view of the approach and performance of our customers and business partners with respect to ESG matters. Any such negative publicity could arise from adverse news coverage in traditional media and could also spread through the use of social media platforms. Our relationships and reputation with our existing and prospective customers and third parties with which we do business could be damaged if we were to become the subject of any such negative publicity. This, in turn, could have an adverse effect on our ability to attract and retain customers and employees and could have a negative impact on the market price for our stock. Investors have begun to consider the steps taken and resources allocated by financial institutions and other commercial organizations to address ESG matters when making investment and operational decisions. Certain investors are beginning to incorporate the business risks of climate change and the adequacy of companies’ responses to the risks posed by climate change and other ESG matters into their investment theses. These shifts in investing priorities may result in adverse effects on the market price of our stock to the extent investors determine we have not made sufficient progress on ESG matters.

In addition, customers, employees, regulators and suppliers have also been focused on ESG matters. Companies that do not adapt to or comply with ESG expectations and standards, or that are perceived to have not responded appropriately to the growing concern regarding ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and other adverse consequences. To the extent ESG matters negatively impact our reputation, we may not be able to compete as effectively to recruit or retain employees, which may adversely affect our operations.

Further, growing public concern about climate change has resulted in the increased focus of local, state, regional, national and international regulatory bodies on greenhouse gas emissions and climate change issues. Policy changes and changes in federal, state and local legislation and regulations based on concerns about climate change, including regulations aimed at limiting greenhouse gas emissions and the implementation of "green" building codes, could result in increased capital expenditures on our existing properties (for example, to improve their energy efficiency) without a corresponding increase in revenue, resulting in adverse impacts to our results of operations.

In March 2024, the SEC issued final rules on climate change disclosure requirements that will require disclosure of climate-related information by all registrants. To the extent new rules impose additional reporting obligations on us, we could face increased costs. The SEC has also announced that it is scrutinizing climate-change related disclosures in public filings, increasing the potential for enforcement if the SEC were to allege that our existing climate disclosures are misleading or deficient. However, any assessment of the potential impact of future climate change legislation, regulations or industry standards, as well as any international treaties and accords, is uncertain given the wide scope of potential regulatory change.

The current political climate and military actions in Eastern Europe could result in disruption to our operations.

Expansion into Europe to meet the demand for our services could be disrupted by the ongoing military actions in Eastern Europe. If we are unable to continue our expansion into Europe, or our expansion requires greater capital than we have budgeted, our operating results and the value of our common stock may be materially adversely affected.

Further, the conflict has led to increases in the cost of energy and the potential for energy shortages, especially in Europe. The European energy crisis has continued in 2023 amid the Russia and Ukraine war, fueling supply uncertainties and increasing the risk of energy shortages across Europe due to the lack of gas from Russia. This resulted in decisive measures implemented by the European Union to help manage security of supply and establish new sources of gas. Our customers and potential customers experienced a rapid increase in energy costs and our expectation is that the energy cost inflation will continue into 2025.

Failure to retain our existing workforce and to attract qualified new personnel in the current labor market could adversely affect our business and results of operations.

The current U.S. labor shortage has and may continue to impact our ability to hire and retain qualified personnel and may impact our ability to operate our business effectively. We may experience a labor shortage preventing us from filling targeted staffing levels. A labor shortage may also impact our ability to attract qualified new personnel. Additionally, the COVID pandemic has changed the way businesses operate with companies allowing employees to work remotely from home or in hybrid work models. We may not be able to attract, hire or retain qualified personnel if competing companies offer a more desirable work model.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our results of operations and financial condition should be read together with the financial statements and related notes and the other financial information included elsewhere in this Report. Such discussion and analysis reflects our historical results of operations and financial position. This discussion contains forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and "Cautionary Information about Forward-Looking Statements" and elsewhere in this Report.

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

As described in the Explanatory Note above and in Note 1A to our Consolidated Financial Statements, we have restated our Consolidated Financial Statements as of December 31, 2023, and 2022 and for the years ended December 31, 2023 and 2022 contained in this Amendment No. 2. As a result, the previously reported financial information as of December 31, 2023 and 2022 and for the years ended December 31, 2023, and 2022, in this Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, has been updated to reflect the relevant restatements. See Note 1A, Restatement of Previously Filed Financial Statements, and Note 20, Quarterly Financial Information (Unaudited), in the Consolidated Financial Statements for additional information related to the restatement, including descriptions of the adjustments and the impacts on our Consolidated Financial Statements.

Other than the effect of the restatement, this section has not been otherwise modified and does not reflect any information or events occurring after March 28, 2024, the filing date of the Annual Report, or modify or update those disclosures affected by events that occurred at a later date or facts that subsequently became known to the Company, except to the extent they are otherwise required to be included and discussed herein.

OVERVIEW AND HISTORY

urban-gro is an integrated professional services and Design-Build firm. Our business focuses primarily on providing fee-based professional services, Design-Build solutions, as well as the value-added reselling and integration of equipment systems. We derive income from our ability to generate revenue from our clients through the billing of our employees’ time spent on client projects. We offer value-added architectural, engineering, systems procurement and integration, and construction solutions to customers operating in the CEA and Commercial sectors. In the CEA sector, our clients include operators and facilitators in both the cannabis and produce markets in the United States, Canada, and Europe. In the Commercial sector, we work with leading Food and Beverage CPG companies in the United States, and clients in other commercial sectors including light industrial, healthcare, higher education, laboratories, and hospitality. During 2021 and 2022, we made the following acquisitions:

•July 2021 - Three affiliated architecture design companies (the "2WR Entities")

•April 2022 - A construction Design-Build firm ("Emerald")

•October 2022 - An engineering firm ("DVO")

RESULTS OF OPERATIONS (As Restated)

Comparison of Results of Operations for the years ended December 31, 2023 and 2022

During the year ended December 31, 2023, we generated revenues of $69.9 million compared to revenues of $66.3 million during the year ended December 31, 2022, an increase of $3.6 million, or 5%. This increase in revenues is the net result of the following changes in individual revenue components:

•Construction design-build revenues increased $25.5 million, primarily due to significant organic growth within this group;

•Services revenue decreased $1.2 million, which was the result of a decrease in revenues in our existing business due to negative market conditions in the CEA sector;

•Equipment systems revenue decreased $20.4 million due to negative market conditions in the CEA sector and a reduction in capital equipment spending by customers; and

•Other revenue decreased $0.3 million.

During the year ended December 31, 2023, cost of revenues was $60.0 million compared to $54.1 million during the year ended December 31, 2022, an increase of $5.9 million, or 11%. This increase is directly attributable to the increase in revenues indicated above.

Gross profit was $9.9 million (14% of revenue) during the year ended December 31, 2023, compared to $12.2 million (18% of revenue) during the year ended December 31, 2022. Gross profit as a percentage of revenues decreased overall due to increases in lower margin construction design-build revenue combined with decreases in higher margin equipment systems and services revenue.

Operating expenses increased by $6.1 million, or 23%, to $33.2 million for the year ended December 31, 2023 compared to $27.1 million for the year ended December 31, 2022. This increase was due to the net effects of the following:

•For the year ended December 31, 2023, we recorded goodwill impairments of $5.3 million and intangible asset impairments of $0.9 million, as compared to no impairments for the year ended December 31, 2022.

•a $3.0 million increase in general and administrative expenses due to an increase in legal fees defending lawsuits, increases in the average number of personnel and increases in construction design-build revenue which increased business insurance and lease costs; and

•a $3.3 million decrease in a one-time business development expense related to satisfying an equipment lighting issue encountered by a major customer

Non-operating expense was $2.1 million for the year ended December 31, 2023, compared to $1.3 million for the year ended December 31, 2022, an increase of $0.8 million. This increase was primarily due to a $0.5 million loss on settlement and a $0.3 million write down of investment in 2023 compared to a $— million write down of investment recorded in 2022.

Income tax expense was $0.1 million for the year ended December 31, 2023, compared to an income tax benefit of $1.0 million for the year ended December 31, 2022, a decrease of $1.1 million. This decrease was the result of a reduction in income tax benefits related to accounting for acquisitions in 2022 as compared to 2023.

As a result of the above, we incurred a net loss of $25.4 million for the year ended December 31, 2023, or a net loss per share of $2.34, compared to a net loss of $15.3 million for the year ended December 31, 2022, or a net loss per share of $1.41.

NON-GAAP FINANCIAL MEASURES

The Company uses the supplemental financial measure of Adjusted Earnings before Interest, Taxes, Depreciation and Amortization ("Adjusted EBITDA") as a measure of our operating performance. Adjusted EBITDA is not calculated in accordance with U.S. GAAP and it is not a substitute for other measures prescribed by U.S. GAAP such as net income (loss), income (loss) from operations, and cash flows from operating activities. We define Adjusted EBITDA as net income (loss) attributable to urban-gro, Inc., determined in accordance with U.S. GAAP, excluding the effects of certain operating and non-operating expenses including, but not limited to, interest expense/income, income taxes/benefit, depreciation of tangible assets, amortization of intangible assets, impairment losses, unrealized exchange gains/losses, debt forgiveness and extinguishment, stock-based compensation expense, acquisition costs, and other nonrecurring expenses that we do not believe reflect our core operating performance.

Our Board and management team focus on Adjusted EBITDA as a key performance and compensation measure. We believe that Adjusted EBITDA assists us in comparing our operating performance over various reporting periods because it removes from our operating results the impact of items that our management believes do not reflect our core operating performance.

The following table reconciles net loss attributable to the Company to Adjusted EBITDA for the periods presented:

	For the Years Ended December 31,
	2023		2022
	(As Restated)		(As Restated)
Net Loss (GAAP)	$	(25,437,661)	$	(15,254,676)
Interest expense	271,686		54,577
Interest income	(173,895)		(329,012)
Federal and state income tax (provisions)	94,209		(983,315)
Federal and state income tax payments	185,910		16,253
Depreciation and amortization	1,636,667		1,483,065
EBITDA (non-GAAP)	$	(23,423,084)	$	(15,013,108)
Non-recurring legal fees	1,249,133		352,173
One-time employee expenses	—		819,089
Contingent consideration - change in fair value	160,232		436,905
Contingent consideration - DVO acquisition	278,559		—
Reduction in force costs	346,725		—
One time business development expenses	—		3,299,864
Impairment of goodwill and intangibles	6,273,595		—
Impairment on investment	258,492		2,660,934
Loss on settlement	1,500,000		—
Retention incentive	1,242,000		—
Stock-based compensation	2,199,046		2,571,785
Transaction costs	30,197		347,317
Adjusted EBITDA (non-GAAP)	$	(9,885,105)	$	(4,525,041)

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2023, we had negative working capital of $5.1 million, compared to positive working capital of $6.4 million as of December 31, 2022, a decrease of $11.5 million. This decrease in working capital was primarily due to a decrease in cash of $10.7 million (which is further detailed below) and the net effects of increases in current liabilities and increases in current assets excluding cash. Due to the acquisition of Emerald in 2022, the Company includes in working capital contract receivables and liabilities related to construction projects. These construction working capital balances are described in further detail in our consolidated financial statements, including the accompanying notes.

As of December 31, 2023, we had cash of $1.1 million, which represented a decrease of $10.7 million from $11.8 million as of December 31, 2022. Changes in cash during 2023 and 2022 are discussed below.

On December 13, 2023, UG Construction, Inc, ("UG Construction"), a wholly owned subsidiary of the Company, entered into an interest only asset based revolving loan agreement ("the Line of Credit") with Gemini Finance Corp. ("Lender") pursuant to which Lender extended to UG Construction the Line of Credit in an amount not to exceed $10.0 million to be used to assist UG Construction and the Company with cash management. Lender will consider requests under the Line of Credit, which Lender may accept or reject in its discretion, until September 12, 2024 ("the Initial Term"), subject to an automatic extension for an additional nine-month term until May 12, 2025. provided that UG Construction is in compliance with all the terms of the applicable loan documents and Lender has not sent a written notice of non-renewal at least 60 days prior to expiration of the Initial Term. The Line of Credit contains standard events of default and representations and warranties by UG Construction and the Lender and the Company has entered into a Continuing Guaranty pursuant to which the Company will guarantee repayment of the loans associated with the Line of Credit (the “Guaranty Agreement”). Loans made under the Line of Credit earns interest at a monthly rate of one and seventy-five hundredths percent (1.75%). As of December 31, 2023, we had borrowed $2.5 million under the Line of Credit.

Operating Activities:

Net cash used in operating activities was $10.5 million during the year ended December 31, 2023. This use of cash was the net effect of the net loss of $25.4 million, offset by non-cash expenses of $11.8 million, and a reduction in net operating assets and liabilities of $3.2 million. The $3.2 million reduction in net operating assets and liabilities was due to the net effects of a $13.0 million increase in accounts payable, contract liabilities and accrued expenses, a $2.5 million decrease in prepayments and other assets, offset by a $11.9 million increase in accounts receivable and a decrease in contract assets, customer deposits, operating lease liability, and contingent consideration of $1.4 million.

Net cash used in operating activities was $12.8 million during the year ended December 31, 2022. This use of cash was the net effect of the net loss of $15.3 million, offset by non-cash expenses of $5.4 million, and a decrease in net operating assets and liabilities of $2.9 million. The $2.9 million decrease in net operating assets and liabilities was primarily due to the net effects of a $3.2 million increase in accounts receivable, a $— million increase in customer deposits, offset by a $(6.5) million increase in accounts payable and accrued expenses, and an $7.9 million increase in prepayments and other assets.

Investing Activities:

Net cash provided by investing activities was $1.9 million for the year ended December 31, 2023, primarily from the sale of our investment in XS Financial for $2.4 million offset by the acquisition of property, plant and equipment of $0.5 million. We had no material commitments for capital expenditures as of December 31, 2023.

Net cash used in investing activities was $4.3 million for the year ended December 31, 2022. This use of cash was due to $3.9 million related to the acquisitions of the Emerald and DVO entities and $0.7 million for the purchase of fixed assets.

Financing Activities:

Net cash used in financing activities was $2.0 million for the year ended December 31, 2023. Net cash used in financing activities during the year ended December 31, 2023 primarily relates to cash provided by our line of credit and notes payable of $2.5 million offset by $3.9 million of payments made on the DVO Promissory Note and $0.5 million of payments related to contingent consideration.

Net cash used in financing activities was $5.5 million for the year ended December 31, 2022. This decrease in cash primarily relates to $4.4 million of payments to repurchase common stock and $1.0 million of payments related to contingent consideration.

Material Cash Requirements:

Our material cash requirements include payments on the promissory note associated with the DVO acquisition and operating lease payments. These obligations are described in detail in our consolidated financial statements, including the accompanying notes.

INFLATION

Inflation has resulted in increased costs for our customers. In addition, the U.S. Government has responded to inflation by raising interest rates, which has increased the cost of capital for our customers. We believe this has resulted in some customers delaying projects, reducing the scope of projects or potentially canceling projects, as well as increased costs of our operations, which has negatively impacted the results of our operations during the year ended December 31, 2023. We maintain strategies to mitigate the impact of higher material, energy and commodity costs, including cost reduction, alternative sourcing strategies, and passing along cost increase to customers, which may offset only a portion of the adverse impact. We believe the current inflationary environment has negatively impacted our customers which has led to delays in our customers starting projects, which in turn has delayed our customers from signing contracts with us.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. Please refer to Note 2 – Summary of Significant Accounting Policies set forth immediately following the signature page of this Report for more information on our significant accounting policies.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

Please refer to Recently Issued Accounting Pronouncements in Note 2 – Summary of Significant Accounting Policies set forth immediately following the signature page of this Report for information on new authoritative accounting guidance

OFF-BALANCE SHEET ARRANGEMENTS

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material to investors.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary financial information required by this Item are set forth immediately following the signature page and are incorporated herein by reference.

ITEM 9A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

Our management, with the participation of our CEO and CFO, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Report.

These controls are designed to ensure that information required to be disclosed in the reports we file or submit pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO to allow timely decisions regarding required disclosure.

Based on such evaluation, at the time our Original Form 10-K was filed on March 28, 2024, our CEO and CFO concluded that our disclosure controls and procedures were effective as of December 31, 2023, at reasonable assurance levels. Subsequent to the original evaluation, our CEO and CFO concluded our disclosure controls and procedures were not effective as of December 31, 2023 because of the material weaknesses in our internal control over financial reporting described below.

Notwithstanding the ineffective disclosure controls and procedures as a result of the identified material weaknesses, our CEO and CFO have concluded that the consolidated financial statements, as restated in this Annual Report Amendment No. 2 on Form 10-K/A present fairly, in all material respects, the Company’s financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP).

Our management, including our CEO and CFO, do not expect that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error nor system weakness has resulted in erroneous reporting of financial data.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during our fiscal quarter ended December 31, 2023, which were identified in conjunction with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act. Those rules define internal control over financial reporting as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

•Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and the receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We identified deficiencies that resulted in material weaknesses in our internal control over financial reporting. The material weaknesses identified include:

•Lack of sufficient technical accounting expertise within the accounting function to appropriately address complex technical accounting issues; and

•Failure to maintain a sufficient complement of personnel in our accounting and reporting department to ensure adequate segregation of duties such that appropriate review and monitoring of its financial records are executed.

The material weaknesses described above could result in material misstatements to financial statements or disclosures that would not be prevented or detected.

This Report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Report.

Management’s Plan to Remediate the Material Weaknesses

As it relates to the material weaknesses that exist as of December 31, 2023, we are currently in the process of designing and implementing remediation plans and taking steps to address the root cause of the material weaknesses described above. Such plans include, but may not be limited to, the following:

•Ensure personnel resources within the accounting function have technical accounting expertise and experience commensurate with our operations;

•Engage external consultants to provide support and to assist us in our evaluation of more complex applications of GAAP where technical accounting expertise within the accounting function is considered insufficient; and

•Improve control processes to ensure adequate review by individuals with sufficient technical accounting expertise to prevent disclosure and financial reporting misstatements.

While we believe these efforts will improve our internal controls and address the root cause of the material weaknesses, such material weaknesses will not be remediated until our remediation plan has been fully implemented and we have concluded, through testing, that our controls are operating effectively for a sufficient period of time.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES.

(a)    Exhibits

The exhibit index attached hereto is incorporated herein by reference.

(b)    Financial Statement Schedules

All schedules have been omitted as not applicable or not required under the rules of Regulation S-X.

EXHIBIT INDEX

Exhibit No.	Exhibit Description
2.1	Acquisition Agreement and Plan of Merger (incorporated by reference to Exhibit 2.1 to Form 8-K filed March 14, 2022)
2.2	First Amendment to Acquisition Agreement and Plan of Merger (incorporated by reference to Exhibit 2.2 to Form 8-K filed May 2, 2022)
3.1	Certificate of Incorporation of urban-gro, Inc. (incorporated by reference to Exhibit 3.3 to Form 8-K filed October 30, 2020)

3.2	Certificate of Amendment to Certificate of Incorporation of urban-gro, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed January 5, 2021).
3.3	Amended and Restated Certificate of Incorporation of urban-gro, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed June 21, 2023).
3.4	Bylaws of urban-gro, Inc. (incorporated by reference to Exhibit 3.4 to Form 8-K filed October 30, 2020).
3.5	Amendment No. 1 to Bylaws of urban-gro, Inc. (incorporated by reference to Exhibit 3.1 to Form 8-K filed January 12, 2021).
3.6	Amendment No. 2 to Bylaws of urban-gro, Inc. (incorporated by reference to Exhibit 3.2 to Form 8-K filed June 21, 2023).
4.1	Description of urban-gro, Inc.’s Common Stock.
10.1#	Employment Agreement by and between urban-gro, Inc. and Jason T. Archer, dated January 12, 2023.
10.2	Line of Credit Agreement, dated as of December 12, 2023, between UG Construction and Lender (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 18, 2023).
10.3	Promissory Note, dated December 12, 2023, with UG Construction as the maker and issued to Lender (incorporated by reference to Exhibit 10.2 to Form 8-K filed on December 18, 2023).
10.4	Promissory Note, dated October 18, 2018, between urban-gro, Inc. and Cloud9 Support Inc. (incorporated by reference to Exhibit 10.12 to Form 10-K filed on May 18, 2020).
10.5	Amendment to Promissory Note, dated May 20, 2019, between urban-gro, Inc. and Cloud9 Support Inc. (incorporated by reference to Exhibit 10.13 to Form 10-K filed on May 18, 2020).
10.6	Promissory Note, dated February 21, 2020, between urban-gro, Inc. and Cloud9 Support Inc. (incorporated by reference to Exhibit 10.15 to Form 10-K filed on May 18, 2020).
10.7	Form of Amended and Restated Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 25, 2020).
10.8	Form of Amended and Restated Promissory Note (incorporated by reference to Exhibit 10.2 to Form 8-K filed on November 25, 2020).
10.9	Form of Convertible Promissory Note (incorporated by reference to Exhibit 10.3 to Form 8-K filed on November 25, 2020).
10.10	Form of Convertible Promissory Note (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 18, 2020).
10.11	Security Agreement, dated as of December 12, 2023, between UG Construction and Lender (incorporated by reference to Exhibit 10.3 to Form 8-K filed on December 18, 2023).
10.12	Form of Continuing Guaranty (incorporated by reference to Exhibit 10.4 to Form 8-K filed on December 18, 2023).

10.13	Subordination Agreement, dated February 25, 2020, between urban-gro, Inc. and Cloud9 Support Inc. (incorporated by reference to Exhibit 10.14 to Form 10-K filed on May 18, 2020).
10.14	First Amendment to Loan Agreement, dated as of September 4, 2020, by and among urban-gro, Inc., urban-gro Canada Technologies Inc., Impact Engineering, Inc. and Bridging Finance Inc. (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on November 3, 2020).
10.15	Agreement, dated as of September 18, 2020, by and between urban-gro, Inc. and George (Bob) Pullar (incorporated by reference to Exhibit 10.2 to Form 10-Q filed on November 3, 2020).
10.16	Business Lease between JW Properties, LLC and Registrant dated July 22, 2015 (incorporated by reference to Exhibit 10.4 to Form S-1 Registration Statement filed on May 15, 2018).
10.17	Commercial Lease Agreement between Bravo Lighting, LLC and Registration dated September 1, 2017 (incorporated by reference to Exhibit 10.5 to Form S-1 Registration Statement filed on May 15, 2018).
10.18#	Employment Agreement, dated as of July 1, 2020, by and between urban-gro, Inc. and Bradley Nattrass (incorporated by reference to Exhibit 10.18 to Form S-1 filed on November 16, 2020).
10.19#	Employment Agreement, dated as of July 1, 2020, by and between urban-gro, Inc. and Richard Akright (incorporated by reference to Exhibit 10.19 to Form S-1 filed on November 16, 2020).
10.20#	urban-gro, Inc. 2019 Equity Incentive Plan (incorporated by reference to Form S-8 filed on August 27, 2019)
10.21#	urban-gro, Inc. 2021 Omnibus Stock Incentive Plan, as amended (incorporated by reference to Exhibit 10.1 to Form 8-K filed June 21, 2023).
10.22#	Amendment No. 1 to restricted stock unit grant notice (incorporated by reference to Exhibit 10.2 to Form 10-Q filed August 14, 2023).
10.23#	Amendment No. 1 to form restricted stock unit award agreement (incorporated by reference to Exhibit 10.3 to Form 10-Q filed August 14, 2023).
21.1	Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Form 10-K filed March 27, 2024).
23.1	Consent of BF Borgers CPA PC (incorporated by reference to Exhibit 23.1 to the Form 10-K filed March 27, 2024).
24.1	Power of Attorney (included on signature page to Form 10-K filed March 27, 2024)).
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1**	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
97.1	urban-gro, Inc. Clawback Policy (incorporated by reference to Exhibit 97.1 to the Form 10-K/A filed April 25, 2024).

101.INS	Inline XBRL Instance Document.
101.SCH	Inline XBRL Schema Document.
101.CAL	Inline XBRL Calculation Linkbase Document.
101.DEF	Inline XBRL Definition Linkbase Document.
101.LAB	Inline XBRL Label Linkbase Document.
101.PRE	Inline XBRL Presentation Linkbase Document.
104	Cover Page Interactive Data File (embedded within the Inline XBRL document).

*     Submitted electronically herewith.

**    This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or                                         otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

#    Denotes a management contract or compensatory plan or arrangement.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned thereunder duly authorized.

	URBAN-GRO, INC.
Date: February 18, 2025	By:	/s/ Bradley Nattrass
		Bradley Nattrass Chairperson of the Board of Directors and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Bradley Nattrass	Chairperson of the Board of Directors and Chief Executive Officer	February 18, 2025
Bradley Nattrass	(Principal Executive Officer)
*	Chief Financial Officer	February 18, 2025
Richard A. Akright	(Principal Financial Officer) (Principal Accounting Officer)
*	Director	February 18, 2025
Lewis O. Wilks
*	Director	February 18, 2025
David Hsu
*	Director	February 18, 2025
Sonia Lo
*	Director	February 18, 2025
Anita Britt
*	Director	February 18, 2025
James Lowe

*    By: /s/ Bradley Nattrass    

Name:     Bradley Nattrass

Title:     Attorney-in-Fact

INDEX TO FINANCIAL STATEMENTS

	Page No.
Report of Independent Registered Accounting Firm (PCAOB ID NO: 3627)
Consolidated Balance Sheets as of December 31, 2023 and 2022 (as restated)
Consolidated Statements of Operations and Comprehensive Loss for the Years ended December 31, 2023 and 2022 (as restated)
Consolidated Statement of Changes in Shareholders’ Equity for the Years ended December 31, 2023 and 2022 (as restated)
Consolidated Statements of Cash Flows for the Years ended December 31, 2023 and 2022 (as restated)
Notes to the Consolidated Financial Statements (as restated)

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of urban-gro, Inc.:

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of urban-gro, Inc. (“the Company”) as of December 31, 2023 and 2022 (as restated), the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2023 (as restated), and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022 (as restated), and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023 (as restated), in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph Regarding Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Restatement

As discussed in Note 1a to the financial statements, the 2023 and 2022 financial statements have been restated to correct misstatements.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audits of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements, and (2) involved especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which they relate.

Goodwill Impairment

Critical Audit Matter Description

The Company designated its annual goodwill impairment assessment date as October 1. The Company has two reporting units for impairment testing purposes, and as a result of such assessments, the Company recognized a goodwill impairment charge of approximately $5.3 million, leaving a goodwill balance of approximately $9.7 million. As described in Note 2 to the financial statements, the Company tests goodwill for impairment annually at the reporting unit level, or more frequently if events or circumstances indicate it is more likely than not that the fair value of a reporting unit is less than it’s carrying amount. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company’s estimate of fair value for each reporting unit is based on the present value of estimated future cash flows attributable to the respective reporting unit. The Company utilized a third-party valuation specialist to assist in the preparation of the impairment assessments. The determination of the fair value requires management to make significant estimates and assumptions.

We identified the evaluation of the impairment analysis for goodwill as a critical audit matter because of the significant estimates and assumptions management made in determining the fair value of its reporting units. This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of such estimates and assumptions. In addition, the audit effort involved the use of professionals with specialized skills and knowledge.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the following:

•Testing management’s processes for estimating the fair value of its reporting units.

•Obtaining the Company’s discounted cash flow models and evaluating the valuation analysis for mathematical accuracy.

•Evaluating whether the valuation techniques applied were appropriate.

•Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist related to revenues, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), income taxes, long term growth rates, and discount rates to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

In addition, professionals with specialized skills and knowledge were utilized by the Firm to assist in the performance of these procedures.

Long-Lived Asset Impairment

Critical Audit Matter Description

As described in Note 2 to the consolidated financial statements, the Company reviews its long-lived asset group, including finite-lived intangible assets, for impairment when events or changes in circumstances indicate that the carrying amount of such long-lived asset group may not be recoverable. The Company tested its long-lived asset group for impairment on October 1, 2023, which resulted in the recognition of impairment charges of approximately $0.9 million related to the Company’s intangible assets. The Company utilized a third-party valuation specialist to assist in the preparation of the impairment assessment. The determination of the fair value requires management to make significant estimates and assumptions.

We identified the evaluation of the impairment analysis for long-lived assets as a critical audit matter because of the significant estimates and assumptions management used in the fair value models. Performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the following:

•Testing management’s process for developing the recoverability value and fair value estimates.

•Evaluating the appropriateness of the valuation models used.

•Testing the completeness and accuracy of underlying data used in the fair value estimates.

•Evaluating for reasonableness the significant assumptions used by management and the valuation specialist in the recoverability test including revenues, EBITDA, and discount rates.

•Evaluating the significant assumptions provided by management or developed by the third-party valuation specialist in the fair value models related to revenues, earnings before interest, taxes, depreciation, and amortization (“EBITDA”), income taxes, long term growth rates, and discount rates to discern whether they are reasonable considering (i) the current and past performance of the entity; (ii) the consistency with external market and industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

In addition, the Firm utilized professionals with specialized skills and knowledge to assist in the performance of these procedures.

Revenue Recognition Over Time

Critical Audit Matter Description

As described further in Note 3 to the financial statements, revenues derived from certain contracts in the Services and Construction design-build segments are recognized as performance obligations are satisfied over time. The Company uses a ratio of project costs incurred to estimated total costs for each contract to recognize revenue. Under the cost-to-cost measure, the determination of progress towards completion requires management to prepare estimates of the costs to complete. In addition, the Company’s contracts may include variable consideration related to contract modifications, and management must also estimate the variable consideration the Company expects to receive in order to estimate the total contract revenue. We identified revenue recognized over time to be a critical audit matter.

The principal consideration for our determination that revenue recognized over time is a critical audit matter is that auditing management’s estimate of the progress toward completion of its projects was complex and subjective. Considerable auditor judgment was required to evaluate management’s determination of the forecasted costs to complete its contracts as future results may vary significantly from past estimates due to changes in facts and circumstances. In addition, auditing the Company’s measurement of variable consideration is complex and highly judgmental and can have a material effect on the amount of revenue recognized.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to revenue recognized over time included the following, among others.

•We obtained an understanding of the Company’s process related to the initial and ongoing monitoring of changes in the contract cost-to-cost estimates.

•We agreed a sample of costs allocated to contracts to supporting documentation and recalculated revenues recognized based on the percentage of completion.

•For a selection of contracts, we tested the Company’s cost-to-cost estimates by evaluating the appropriate application of the cost-to-cost method, testing the significant assumptions used to develop the estimated cost to complete and testing the completeness and accuracy of the underlying data.

/s/ Sadler, Gibb & Associates, LLC

We have served as the Company’s auditor since 2024.

Draper, UT

February 18, 2025

urban-gro, Inc.

CONSOLIDATED BALANCE SHEETS

	As of December 31,
	2023		2022
ASSETS	(As Restated)		(As Restated)
Current assets:
Cash	$	1,074,842	$	11,754,349
Accounts receivable, net	21,648,901		15,132,566
Contract receivables	8,436,567		3,004,282
Prepaid expenses and other current assets	1,751,564		3,447,654
Total current assets	$	32,911,874	33,338,851
Non-current assets:
Property and equipment, net	1,419,393		1,307,146
Operating lease right of use assets, net	2,041,217		2,618,825
Investments	—		2,559,307
Goodwill	9,688,975		15,019,671
Intangible assets, net	3,451,608		5,450,687
Total non-current assets	$	16,601,193	26,955,636
Total assets	$	49,513,067	$	60,294,487
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	24,203,769	$	9,870,645
Contract liabilities	3,950,133		2,036,606
Accrued expenses	5,284,278		5,216,514
Customer deposits	603,046		2,571,161
Contingent consideration	49,830		2,799,287
Notes payable and line of credit	3,204,840		3,832,682
Operating lease liabilities	707,141		600,816
Total current liabilities	$	38,003,037	$	26,927,711
Non-current liabilities:
Operating lease liabilities, net of current portion	1,380,362		2,044,782
Deferred tax liability	44,313		—
Total non-current liabilities	$	1,424,675	2,044,782
Total liabilities	$	39,427,712	$	28,972,493
Commitments and contingencies (note 12)
Shareholders’ equity:
Preferred stock, $0.10 par value; 3,000,000 shares authorized; 0 shares issued and outstanding as of December 31, 2023 and December 31, 2022	—		—
Common stock, $0.001 par value; 30,000,000 shares authorized; 13,522,669 issued and 12,072,836 outstanding as of December 31, 2023 and 30,000,000 shares authorized; 12,292,104 issued and 10,842,271 outstanding as of December 31, 2022	13,523		12,292
Additional paid-in capital	88,389,756		84,189,965
Treasury shares, cost basis: 1,449,833 shares as of December 31, 2023 and 1,449,833 as of December 31, 2022	(12,045,542)		(12,045,542)
Accumulated deficit	(66,272,382)		(40,834,721)
Total shareholders’ equity	$	10,085,355	31,321,994
Total liabilities and shareholders’ equity	$	49,513,067	$	60,294,487

The accompanying notes are an integral part of these consolidated financial statements

urban-gro, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

	For the Years Ended December 31,
	2023		2022
	(As Restated)		(As Restated)
Revenues:
Equipment systems	$	12,720,873	$	33,119,480
Services	11,919,920		13,084,643
Construction design-build	44,561,783		19,080,746
Other	717,472		1,009,830
Total revenues	69,920,048		66,294,699
Cost of revenues:
Equipment systems	11,081,536		28,776,023
Services	7,222,964		6,239,013
Construction design-build	41,194,894		18,392,076
Other	517,988		732,065
Total cost of revenues	60,017,382		54,139,177
Gross profit	9,902,666		12,155,522
Operating expenses:
General and administrative	25,277,878		22,305,096
Depreciation and amortization	1,636,667		1,483,065
Impairment of goodwill and intangibles	6,273,595		—
Business development	—		3,299,864
Total operating expenses	33,188,140		27,088,025
Loss from operations	(23,285,474)		(14,932,503)
Non-operating income (expenses):
Interest expense	(271,686)		(54,577)
Interest income	173,895		329,012
Change in fair value of contingent consideration	(160,232)		(436,905)
Write-down of investment	(258,492)		—
Loss on settlement	(1,500,000)		(950,575)
Other income (expense)	(41,463)		(192,443)
Total non-operating income (expenses)	(2,057,978)		(1,305,488)
Loss before income taxes	(25,343,452)		(16,237,991)
Income tax benefit	(94,209)		983,315
Net loss	$	(25,437,661)	$	(15,254,676)
Comprehensive loss	$	(25,437,661)	$	(15,254,676)
Loss per share – basic and diluted	$	(2.34)	$	(1.41)
Weighted average shares – basic and diluted	10,881,675		10,786,967

The accompanying notes are an integral part of these consolidated financial statements

urban-gro, Inc.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

	Common Stock			Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
	(As Restated)	(As Restated)		(As Restated)		(As Restated)		(As Restated)		(As Restated)
Balance, December 31, 2021	11,626,522	$	11,627	$	78,425,081	$	(25,580,045)	$	(7,683,490)	$	45,173,173
Stock-based compensation	—	–		$	2,571,785	–		–		2,571,785
Common stock repurchased	—	–		–		–		(4,362,052)		(4,362,052)
Stock issuance related to acquisition	555,390	555		3,164,412		–		–		3,164,967
Stock issued in conversion of warrants	18,196	18		(18)		–		–		—
Stock grant program vesting	87,441	87		(87)		–		–		–
Stock options exercised	4,555	5		28,792		–		–		28,797
Net loss	—	–		–		(15,254,676)		–		(15,254,676)
Balance, December 31, 2022	12,292,104	$	12,292	$	84,189,965	$	(40,834,721)	$	(12,045,542)	$	31,321,994
Stock-based compensation	—	–		$	2,199,046	–		–		2,199,046
Stock issued for contingent consideration	833,357	898		1,819,959		–		—		1,820,857
Stock grant program vesting	397,208	333		(333)		–		–		–
Issuance of warrants	—	–		181,119		—		–		181,119
Net loss	—	–		–		(25,437,661)		–		(25,437,661)
Balance, December 31, 2023	13,522,669	$	13,523	$	88,389,756	$	(66,272,382)	(12,045,542)		$	10,085,355

The accompanying notes are an integral part of these consolidated financial statements

urban-gro, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the Years Ended December 31,
	2023		2022
	(As Restated)		(As Restated)
Cash flows from operating activities:
Net loss	$	(25,437,661)	$	(15,254,676)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,636,667		1,483,065
Amortization of right-of-use asset	460,347		192,955
Stock-based compensation expense	2,199,046		2,571,785
Loss on settlement	308,229		950,575
Loss on legal settlement	1,500,000		—
Write-down of investment	258,492		—
Impairment of goodwill and intangibles	6,273,595		—
Change in fair value of contingent consideration	160,232		436,905
Change in contingent consideration from indemnification	(917,699)		—
Interest income on investments	(121,867)		(281,687)
Changes in operating assets and liabilities (net of acquired amounts):
Accounts receivable and contract receivables	(11,948,620)		(3,172,241)
Prepaid expenses and other assets and property and equipment	2,525,209		7,926,330
Accounts payable, contract liabilities, customer deposits, and accrued expenses	12,979,969		(6,456,351)
Operating lease liability	(436,320)		(251,733)
Deferred tax liability	44,313		(914,750)
Net cash used in operating activities	(10,516,068)		(12,769,823)
Cash flows from investing activities:
Sale of investments	2,422,682		222,380
Purchases of property and equipment	(540,494)		(675,277)
Business combinations, net of cash acquired	—		(3,871,452)
Net cash provided by (used in) investing activities	1,882,188		(4,324,349)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs	—		28,797
Repurchase of common stock	—		(4,362,052)
Additions to notes payable	2,500,000		—
Repayment of finance lease liability	(156,754)		(134,797)
Payments to settle contingent consideration	(479,362)		(1,040,386)
Repayments of notes payable	(3,909,511)		—
Net cash used in financing activities	(2,045,627)		(5,508,438)
Net change in cash	(10,679,507)		(22,602,610)
Cash at beginning of period	11,754,349		34,356,959
Cash at end of period	$	1,074,842	$	11,754,349

The accompanying notes are an integral part of these consolidated financial statements

urban-gro, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

	For the Years Ended December 31,
	2023		2022
	(As Restated)		(As Restated)
Supplemental cash flow information:
Cash paid for interest	$	142,388	$	28,147
Net cash paid for income taxes	185,910		16,253

	For the Years Ended December 31,
	2023		2022
	(As Restated)		(As Restated)
Supplemental disclosure of non-cash investing and financing activities:
Stock issued for contingent consideration	$	1,820,857	$	—
Stock issued in business combinations	—		3,164,967
Warrants issued in connection with line of credit	181,119		—
Prepaid assets financed by notes payable	648,000		—
Operating lease right-of-use asset and liability measurement	11,315		988,351
Financing lease right-of-use asset and liability measurement	23,664		69,600

The accompanying notes are an integral part of these consolidated financial statements

urban-gro, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (AS RESTATED)

NOTE 1 – ORGANIZATION AND ACQUISITIONS, BUSINESS PLAN, AND LIQUIDITY

Organization

urban-gro, Inc. (together with its wholly owned subsidiaries, collectively "urban-gro," "we," "us," or "the Company") was originally formed on March 20, 2014, as a Colorado limited liability company. On March 10, 2017, we converted to a Colorado corporation and exchanged shares of our common stock for every member's interest issued and outstanding on the date of conversion. On October 29, 2020, we reincorporated as a Delaware corporation. On February 12, 2021, we completed an uplisting to the Nasdaq Capital Market ("Nasdaq") under the ticker symbol "UGRO".

urban-gro is an integrated professional services and design-build firm. We offer value-added architectural, engineering, and construction management solutions to the Controlled Environment Agriculture ("CEA"), industrial, healthcare, and other commercial sectors. Innovation, collaboration, and a commitment to sustainability drive our team to provide exceptional customer experiences. To serve our horticulture clients, we engineer, design and manage the construction of indoor CEA facilities and then integrate complex environmental equipment systems into those facilities. Through this work, we create high-performance indoor cultivation facilities for our clients to grow specialty crops, including leafy greens, vegetables, herbs, and plant-based medicines. Our custom-tailored approach to design, construction, procurement, and equipment integration provides a single point of accountability across all aspects of indoor growing operations. We also help our clients achieve operational efficiency and economic advantages through a full spectrum of professional services and programs focused on facility optimization and environmental health which establish facilities that allow clients to manage, operate and perform at the highest level throughout their entire cultivation lifecycle once they are up and running. Further, we serve a broad range of commercial and governmental entities, providing them with planning, consulting, architectural, engineering and construction design-build services for their facilities. We aim to work with our clients from the inception of their project in a way that provides value throughout the life of their facility. We are a trusted partner and advisor to our clients and offer a complete set of engineering and managed services complemented by a vetted suite of select cultivation equipment systems.

Acquisitions

DVO

Effective October 31, 2022, the Company entered into an agreement with Dawson Van Orden, Inc. ("Seller" or "DVO") and DVO's shareholders (the "DVO Shareholders") to acquire substantially all of the operating assets and liabilities of DVO, a Texas-based engineering firm with significant experience in indoor CEA. The Company had been looking for an engineer firm with CEA experience as it is invaluable when choosing the correct mechanical equipment systems for an controlled environment facility, and therefore the company expected a significant increase in their customized equipment offering. Further, having a engineering team in-house would be expected to lead to new business opportunities as the Company could cross-sell their various offerings to DVO's client base. The purchase price of $6.1 million, after working capital adjustments, was comprised of (i) $1.2 million in cash, (ii) a $3.8 million Seller's promissory note, and (iii) $1.1 million of the Company's common stock. The Seller's promissory note was initially to be paid out over four quarters beginning in January 2023. In the third quarter of 2023, a portion of that quarter’s note payment was extended to the first quarter of 2024. The purchase price excludes up to $1.1 million of contingent consideration earnout that may become payable to the sellers dependent on the continued employment of the DVO Shareholders. The contingent consideration earnout is payable, at the Company’s discretion, in cash or shares of the Company’s common stock with the value of such shares being determined based upon the volume-weighted average price ("VWAP") of the Company’s common stock in the ten trading days prior to the end of the applicable quarter for which the quarterly gross profit is calculated.

The Company accounted for the acquisition as follows:

Purchase price	$	6,072,366
Allocation of purchase price:
Accounts receivable, net	$	1,134,909
Right of use asset	$	1,197,310
Property and equipment	$	229,058
Goodwill	$	3,444,926
Intangible assets	$	1,276,000
Accrued expenses	$	(12,527)
Right of use liability	$	(1,197,310)

Pro-forma disclosure of the DVO acquisition is not required as the historical results of DVO were not material to the Company's consolidated financial statements. Acquired goodwill from DVO represents the value expected to arise from organic growth and an opportunity to expand into a well-established market for the Company.

Emerald/UG Construction, Inc.

Effective April 29, 2022, the Company acquired all of the issued and outstanding capital stock of Emerald Construction Management, Inc. ("Emerald") from its shareholders (the "Emerald Sellers"). This acquisition was essential to the Company as it allowed us to enter the design-build segment, and offer a full suite of solutions to our client base. Further, having a construction company in-house would be expected to lead to new business opportunities as the Company could cross-sell their various offerings to Emerald's client base. The purchase price of $7.2 million, after working capital adjustments, was comprised of (i) $3.4 million in cash, (ii) $2.0 million of the Company’s common stock, and (iii) $1.1 million of estimated contingent consideration earnout payable to the Emerald Sellers over the term of the earnout. The total contingent earnout payable to the Emerald Sellers is $2.0 million. Effective January 1, 2023, the terms of the contingent consideration earnout provisions were amended providing for the entire contingent consideration of up to $2.0 million to be earned based solely on the continued employment of the Emerald Sellers for a two year period following the closing of the Emerald acquisition. This resulted in the Company recording additional contingent consideration expense of $160,232 in the first quarter of 2023. Per the amendment, the remaining contingent consideration earnout is payable quarterly, at the Company’s discretion, in cash or in shares of the Company’s common stock with the value of such shares being determined based upon the VWAP of the Company’s common stock in the ten trading days prior to the end of the applicable quarter. Effective November 21, 2023, Emerald changed its name to UG Construction, Inc.

The Company accounted for the acquisition as follows:

Purchase price	$	7,232,712
Allocation of Purchase Price:
Cash	$	622,641
Accounts receivable, net	$	2,666,811
Contract receivable	$	494,456
Prepayments and other assets	$	38,086
Property and equipment	$	403,008
Right of use asset	$	82,408
Goodwill	$	3,696,161
Intangible assets	$	3,659,000
Accrued expenses	$	(2,361,302)
Contract liabilities	$	(1,071,399)
Right of use liability	$	(82,408)
Deferred tax liability	$	(914,750)

The following pro-forma amounts reflect the Company’s results as if the acquisition of Emerald had occurred on January 1, 2022. These pro-forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of the acquisition to reflect the additional amortization of intangibles.

	For the Years Ended December 31,
	2023		2022
Revenues:
Equipment systems	$	12,720,873	$	33,119,480
Services	11,919,920		13,084,643
Construction design-build	44,561,783		30,814,975
Other	717,472		1,009,830
Total revenues and other income	69,920,048		78,028,928
Net loss	$	(25,437,661)	$	(14,405,685)

Acquired goodwill from Emerald represents the value expected to arise from organic growth and an opportunity to expand into a well-established market for the Company.

Per the Emerald Acquisition Agreement and Plan of Merger (the “Emerald Acquisition Agreement”), when the Company acquired all of the issued and outstanding capital stock of Emerald, the Emerald Sellers indemnified the Company for any material liabilities, losses, and actions or inaction which took place prior to the acquisition and that were not disclosed as part of the transaction. To that end, a pre-acquisition Emerald project incurred a substantial loss that was not disclosed in the Emerald Acquisition Agreement. The majority shareholder of Emerald has agreed to indemnify the Company for the loss, which is currently estimated to be $2.4 million (the “Indemnified Loss”). In the second quarter of 2023, the Company offset $1.0 million of the Indemnified Loss against the total remaining contingent consideration and certain other liabilities owed to the majority shareholder of Emerald thereby resulting in a net amount due from the majority shareholder of Emerald to $1.4 million. Further, the Company has agreed to satisfy up to $1.2 million of the Indemnified Loss in the event a certain Emerald project is above a 7% profit margin, on a dollar for dollar basis.

Liquidity and Going Concern

The Company has produced multiple consecutive years of net losses and negative cash flows. The financial results described in these financial statements and our financial position as of December 31, 2023 raise substantial doubt about our ability to continue as a going concern. However, the Company has recently taken actions to strengthen its liquidity, including decreasing headcount and operating expenses to expedite the Company's path to cash flow positive results. If necessary, the Company will seek to raise capital by issuing additional equity shares either through a private placement or on the open market. The Company may also seek to obtain additional debt financing for which there can be no guarantee. Management has concluded that these recent positive steps alleviate any substantial doubt about the Company's ability to continue its operations, and meet its financial obligations, for twelve moths from the date these consolidated financial statements are issued.

NOTE 1A – RESTATEMENT OF PREVIOUSLY FILED FINANCIAL STATEMENTS

Restatement of Previously Filed Financial Statements

As detailed in the Explanatory Note, the Company has restated its consolidated financial statements for the years ended December 31, 2023 and 2022 in the following tables and the unaudited quarterly condensed consolidated financial information for each of the interim periods in the years ended December 31, 2023 and 2022 in Note 20. The accompanying applicable Notes have been updated to reflect the effects of the restatement.

The following tables present the effect of the restatement on the Company's previously reported Consolidated Balance Sheets as of the years ended December 31, 2023 and December 31, 2022. The amounts in the "As Reported" columns are amounts derived from the Company's previously filed financial statements in its Annual Report on Form 10-K for the year ended December 31, 2023, originally filed with the Securities and Exchange Commission on March 28, 2024 (the “Original Form 10-K”). The amounts in the "Restatement Adjustments" columns present the impact of the adjustments arising from the re-audit of the Company’s 2023 financial statements. The amounts in the "As Restated" columns are the updated amounts including the impact from the Restatement Adjustments. At the bottom of the tables listed in this section are notes addressing the cause of the restatement adjustments as indicated by the respective lettering.

	As of December 31, 2023
	As		Restatement			As
ASSETS	Reported		Adjustments		Note	Restated
Current assets:
Cash	$	1,112,504	$	(37,662)	(G)	$	1,074,842
Accounts receivable, net	26,991,739		(5,342,838)		(J)	21,648,901
Contract receivables	10,071,951		(1,635,384)		(C)	8,436,567
Prepaid expenses and other current assets	2,775,682		(1,024,118)		(D) (F)	1,751,564
Total current assets	40,951,876		(8,040,002)			32,911,874
Non-current assets:
Property and equipment, net	1,419,393		—			1,419,393
Operating lease right of use assets, net	2,041,217		—			2,041,217
Investments	—		—			—
Goodwill	15,572,050		(5,883,075)		(A) (I) (K)	9,688,975
Intangible assets, net	4,394,507		(942,899)		(I)	3,451,608
Total non-current assets	23,427,167		(6,825,974)			16,601,193
Total assets	$	64,379,043	$	(14,865,976)		$	49,513,067
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	25,411,243	$	(1,207,474)	(C)	$	24,203,769
Contract liabilities	8,063,325		(4,113,192)		(C)	3,950,133
Accrued expenses	4,071,231		1,213,047		(B) (C)	5,284,278
Customer deposits	603,046		—			603,046
Contingent consideration	49,830		—			49,830
Notes payable and line of credit	3,204,840		—			3,204,840
Operating lease liabilities	707,141		—			707,141
Total current liabilities	42,110,656		(4,107,619)			38,003,037
Non-current liabilities:
Operating lease liabilities	1,380,362		—			1,380,362
Deferred tax liability	817,419		(773,106)		(A)	44,313
Total non-current liabilities	2,197,781		(773,106)			1,424,675
Total liabilities	$	44,308,437	$	(4,880,725)		$	39,427,712
Commitments and contingencies (note 12)
Shareholders’ equity:
Preferred stock	—		—			—
Common stock	13,523		—			13,523
Additional paid-in capital	88,901,583		(511,827)		(F)	88,389,756
Treasury shares	(12,045,542)		—			(12,045,542)
Accumulated deficit	(56,798,958)		(9,473,424)		(H)	(66,272,382)
Total shareholders’ equity	20,070,606		(9,985,251)			10,085,355
Total liabilities and shareholders’ equity	$	64,379,043	$	(14,865,976)		$	49,513,067

	As of December 31, 2022
	As		Restatement			As
ASSETS	Reported		Adjustments		Note	Restated
Current assets:
Cash	$	12,008,003	$	(253,654)	(G)	$	11,754,349
Accounts receivable, net	15,380,292		(247,726)		(G)	15,132,566
Contract receivables	3,004,282		—			3,004,282
Prepaid expenses and other current assets	4,164,960		(717,306)		(D)	3,447,654
Total current assets	34,557,537		(1,218,686)			33,338,851
Non-current assets:
Property and equipment, net	1,307,146		—			1,307,146
Operating lease right of use assets, net	2,618,825		—			2,618,825
Investments	2,559,307		—			2,559,307
Goodwill	15,572,050		(552,379)		(A) (K)	15,019,671
Intangible assets, net	5,450,687		—			5,450,687
Total non-current assets	27,508,015		(552,379)			26,955,636
Total assets	$	62,065,552	$	(1,771,065)		$	60,294,487
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	9,960,364	$	(89,719)	(G)	$	9,870,645
Contract liabilities	1,294,452		742,154		(C)	2,036,606
Accrued expenses	3,196,961		2,019,553		(B) (C)	5,216,514
Customer deposits	2,571,161		—			2,571,161
Contingent consideration	2,799,287		—			2,799,287
Notes payable	3,832,682		—			3,832,682
Operating lease liabilities	600,816		—			600,816
Total current liabilities	24,255,723		2,671,988			26,927,711
Non-current liabilities:
Operating lease liabilities	2,044,782		—			2,044,782
Deferred tax liability	1,033,283		(1,033,283)		(A)	—
Total non-current liabilities	3,078,065		(1,033,283)			2,044,782
Total liabilities	$	27,333,788	$	1,638,705		$	28,972,493
Commitments and contingencies (note 12)
Shareholders’ equity:
Preferred stock	—		—			—
Common stock	12,221		71		(G)	12,292
Additional paid-in capital	84,882,982		(693,017)		(K)	84,189,965
Treasury shares	(12,045,542)		—			(12,045,542)
Accumulated deficit	(38,117,897)		(2,716,824)		(H)	(40,834,721)
Total shareholders’ equity	34,731,764		(3,409,770)			31,321,994
Total liabilities and shareholders’ equity	$	62,065,552	$	(1,771,065)		$	60,294,487

The following tables presents the effect of the restatement on the Company's previously reported Consolidated Statements of Comprehensive Income for the years ended December 31, 2023, and December 31, 2022. The values as previously reported were derived from the Company’s Original Form 10-K:

	For the Year Ended December 31, 2023
	As		Restatement			As
	Reported		Adjustments		Note	Restated
Revenues:
Equipment systems	$	12,675,645	$	45,228	(G)	$	12,720,873
Services	11,923,920		(4,000)		(G)	11,919,920
Construction design-build	46,254,967		(1,693,184)		(C)	44,561,783
Other	688,241		29,231		(G)	717,472
Total revenues	71,542,773		(1,622,725)			69,920,048
Cost of revenues:
Equipment systems	11,085,306		(3,770)		(G)	11,081,536
Services	7,222,968		(4)		(G)	7,222,964
Construction design-build	42,442,858		(1,247,964)		(C)	41,194,894
Other	500,079		17,909		(G)	517,988
Total cost of revenues	61,251,211		(1,233,829)			60,017,382
Gross profit	10,291,562		(388,896)			9,902,666
Operating expenses:
General and administrative	25,332,332		(54,454)		(G)	25,277,878
Depreciation and amortization	1,636,667		—			1,636,667
Impairment of goodwill and intangibles	—		6,273,595		(I)	6,273,595
Total operating expenses	26,968,999		6,219,141			33,188,140
Loss from operations	(16,677,437)		(6,608,037)			(23,285,474)
Non-operating income (expenses):
Interest expense	(271,686)		—			(271,686)
Interest income	173,895		—			173,895
Change in fair value of contingent consideration	(160,232)		—			(160,232)
Write-down of investment	(258,492)		—			(258,492)
Loss on legal settlement	(1,500,000)		—			(1,500,000)
Other income (expense)	(202,973)		161,510		(G)	(41,463)
Total non-operating income (expenses)	(2,219,488)		161,510			(2,057,978)
Loss before income taxes	(18,896,925)		(6,446,527)			(25,343,452)
Income tax benefit	215,864		(310,073)		(A)	(94,209)
Net loss	$	(18,681,061)	$	(6,756,600)		$	(25,437,661)
Comprehensive loss	$	(18,681,061)	$	(6,756,600)		$	(25,437,661)

Loss per share – basic and diluted	$	(1.72)	$	(0.62)	$	(2.34)
Weighted average shares – basic and diluted	10,881,675		10,881,675		10,881,675

	For the Year Ended December 31, 2022
	As		Restatement			As
	Reported		Adjustments		Notes	Restated
Revenues:
Equipment systems	$	33,333,574	$	(214,094)	(G)	$	33,119,480
Services	12,862,308		222,335		(G)	13,084,643
Construction design-build	19,822,901		(742,155)		(C)	19,080,746
Other	1,011,151		(1,321)		(G)	1,009,830
Total revenues	67,029,934		(735,235)			66,294,699
Cost of revenues:
Equipment systems	27,963,258		812,765		(B)	28,776,023
Services	6,225,634		13,379		(G)	6,239,013
Construction design-build	17,905,172		486,904		(C)	18,392,076
Other	730,151		1,914		(G)	732,065
Total cost of revenues	52,824,215		1,314,962			54,139,177
Gross profit	14,205,719		(2,050,197)			12,155,522
Operating expenses:
General and administrative	22,059,775		245,321		(G)	22,305,096
Depreciation and amortization	1,483,065		—			1,483,065
Business development	3,299,864		—			3,299,864
Total operating expenses	26,842,704		245,321			27,088,025
Loss from operations	(12,636,985)		(2,295,518)			(14,932,503)
Non-operating income (expenses):
Interest expense	(54,579)		2		(G)	(54,577)
Interest income	329,012		—			329,012
Contingent consideration	(436,905)		—			(436,905)
Write-down of investment	(1,710,358)		1,710,358		(E)	—
Loss on settlement	(950,575)		—			(950,575)
Other income (expense)	(139,611)		(52,832)		(G)	(192,443)
Total non-operating income (expenses)	(2,963,016)		1,657,528			(1,305,488)
Loss before income taxes	(15,600,001)		(637,990)			(16,237,991)
Income tax benefit	322,092		661,223		(A)	983,315
Net loss	$	(15,277,909)	$	23,233		$	(15,254,676)

Comprehensive loss	$	(15,277,909)	$	23,233	$	(15,254,676)
Loss per share – basic and diluted	$	(1.42)	$	—	$	(1.41)
Weighted average shares – basic and diluted	10,786,967		10,786,967		10,786,967

The following tables presents the effect of the restatement on the Company's previously reported Consolidated Statements of Shareholders' Equity for the years ended December 31, 2023, and December 31, 2022. The values as previously reported were derived from the Company’s Original Form 10-K:

	Common Stock			Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, December 31, 2023, as originally stated	13,522,669	$	13,523	$	88,901,583	$	(56,798,958)	$	(12,045,542)	$	20,070,606
Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price				(692,946)						(692,946)
Warrants issued to Bancroft in connection with the Promissory Note which were not originally recorded on the balance sheet				181,119						181,119
Various income statement adjustments on or prior to December 31, 2023						(9,473,424)				(9,473,424)
Balance, December 31, 2023, as restated	13,522,669	$	13,523	$	88,389,756	$	(66,272,382)	$	(12,045,542)	$	10,085,355
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, December 31, 2022, as originally stated	12,220,593	$	12,221	$	84,882,982	$	(38,117,897)	$	(12,045,542)	$	34,731,764
Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price				(692,946)						(692,946)
Management instructed transfer agent to issue shares related to vested RSUs after the issuance of the December 31, 2022 10-K with issuance effective dates prior to December 31, 2022	71,511	71		(71)						—
Various income statement adjustments on or prior to December 31, 2022						(2,716,824)				(2,716,824)
Balance, December 31, 2022, as restated	12,292,104	$	12,292	$	84,189,965	$	(40,834,721)	$	(12,045,542)	$	31,321,994

The following tables presents the effect of the restatement on the Company's previously reported Cash Flow Statements for the years ended December 31, 2023 and December 31, 2022. The values as previously reported were derived from the Company’s Original Form 10-K:

	For the Year Ended December 31, 2023
	As		Restatement			As
	Reported		Adjustments		Notes	Restated
Cash flows from operating activities:
Net loss	$	(18,681,061)	$	(6,756,600)	(H)	$	(25,437,661)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,636,667		—			1,636,667
Amortization of right-of-use asset	—		460,347		(A)	460,347
Stock-based compensation expense	2,199,046		—			2,199,046
Loss on settlement	—		308,229		(G)	308,229
Loss on legal settlement	1,500,000		—			1,500,000
Write-down of investment	258,492		—			258,492
Impairment of goodwill and intangibles	—		6,273,595		(I)	6,273,595
Change in fair value of contingent consideration	160,232		—			160,232
Change in contingent consideration from indemnification	(917,699)		—			(917,699)
Interest income on investments	735,760		(857,627)		(G)	(121,867)
Changes in operating assets and liabilities (net of acquired amounts):			—
Accounts receivable and contract receivables	(19,245,685)		7,297,065		(C)	(11,948,620)
Prepaid expenses and other assets and property and equipment	2,161,898		363,311		(D)	2,525,209
Accounts payable, contract liabilities, customer deposits, and accrued expenses	19,905,912		(6,925,943)		(C) (D)	12,979,969
Operating lease liability	(690,404)		254,084		(G)	(436,320)
Deferred tax liability	(215,864)		260,177		(A)	44,313
Net cash used in operating activities	(11,192,706)		676,638			(10,516,068)
Cash flows from investing activities:
Sale of investments	2,326,472		96,210		(G)	2,422,682
Purchases of property and equipment	(615,170)		74,676		(G)	(540,494)
Business combinations, net of cash acquired	—		—			—
Net cash provided by (used in) investing activities	1,711,302		170,886			1,882,188
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs	—		—			—
Repurchase of common stock	—		—			—
Additions to notes payable	3,018,400		(518,400)		(G)	2,500,000
Repayment of finance lease liability	(176,572)		19,818		(G)	(156,754)
Payments to settle contingent consideration	(479,362)		—			(479,362)
Repayments of notes payable	(3,776,561)		(132,950)		(G)	(3,909,511)
Net cash used in financing activities	(1,414,095)		(631,532)			(2,045,627)
Net change in cash	(10,895,499)		215,992			(10,679,507)
Cash at beginning of period	12,008,003		(253,654)			11,754,349
Cash at end of period	$	1,112,504	$	(37,662)		$	1,074,842

	For the Year Ended December 31, 2022
	As		Restatement			As
	Reported		Adjustments		Notes	Restated
Cash flows from operating activities:
Net loss	$	(15,277,909)	$	23,233	(H)	$	(15,254,676)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	1,483,065		—			1,483,065
Amortization of right-of-use asset	—		192,955		(A)	192,955
Stock-based compensation expense	2,571,785		—			2,571,785
Loss on settlement	950,575		—			950,575
Write-down of investment	1,710,358		(1,710,358)		(E)	—
Change in fair value of contingent consideration	436,905		—			436,905
Change in contingent consideration from indemnification	—		—			—
Interest income on investments	54,858		(336,545)		(G)	(281,687)
Changes in operating assets and liabilities (net of acquired amounts):			—
Accounts receivable and contract receivables	(2,517,745)		(654,496)		(G)	(3,172,241)
Prepaid expenses and other assets and property and equipment	8,397,707		(471,377)		(D)	7,926,330
Accounts payable, contract liabilities, customer deposits, and accrued expenses	(9,686,483)		3,230,132		(G)	(6,456,351)
Operating lease liability	(413,770)		162,037		(G)	(251,733)
Deferred tax liability	(322,092)		(592,658)		(A)	(914,750)
Customer deposits	—		—			—
Net cash used in operating activities	(12,612,746)		(157,077)			(12,769,823)
Cash flows from investing activities:
Sale of investments	—		222,380		(G)	222,380
Purchases of property and equipment	(580,347)		(94,930)		(G)	(675,277)
Business combinations, net of cash acquired	(3,871,452)		—			(3,871,452)
Net cash provided by (used in) investing activities	(4,451,799)		127,450			(4,324,349)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of offering costs	28,796		1		(G)	28,797
Repurchase of common stock	(4,362,052)		—			(4,362,052)
Additions to notes payable	—		—			—
Repayment of finance lease liability	(146,000)		11,203		(G)	(134,797)
Payments to settle contingent consideration	(1,040,386)		—			(1,040,386)
Repayments of notes payable	—		—			—
Net cash used in financing activities	(5,519,642)		11,204			(5,508,438)
Net change in cash	(22,584,187)		(18,423)			(22,602,610)
Cash at beginning of period	34,592,190		(235,231)			34,356,959
Cash at end of period	$	12,008,003	$	(253,654)		$	11,754,349

See below for a description of the underlying root cause of each material adjustment made in the restatement, which corresponds with the respective lettering in the each of the tables above in this section:

A.The Company adjusted its deferred tax liability entry booked at the time of the Emerald and DVO acquisitions to accurately record the deferred tax liability generated by the acquisitions and then adjusted to release the Company's valuation allowance against the deferred tax liability balance generated through acquisitions.

B.The Company made adjustments to accrue for sales tax payable to various jurisdictions generated from historical invoices where sales tax was not charged to the customer and should have been charged.

C.The Company established accruals for construction projects with negative margins at the time the project was or should have been known to be a negative margin project.

D.The Company adjusted the prepaid balance to expense for instances where the good or service associated with the prepaid balance either had been fully utilized or was no longer available for use by the Company.

E.The Company originally recorded an impairment of its Edyza investment in the third quarter of 2022, however the Company determined the triggering event for the impairment was known prior to fiscal year 2022 and recorded the impairment in the fourth quarter of 2021.

F.The Company recorded an adjustment to record the fair value of the warrants issued to Bancroft in connection with the Promissory Note (see Note 10 for further discussion).

G.These adjustments are comprised of various immaterial adjustments and reclassifications made to correct the Company's accounting records.

H.The adjustment to accumulated deficit and net loss is the result of the cumulative list of restatement adjustments recorded to the income statements in all periods prior to the respective balance sheet date.

I.As a result of the Company’s annual goodwill impairment testing, goodwill and intangible assets were restated to recognize an impairment expense

J.The Company netted accounts receivable and contract liabilities to correct accounting for invoicing prior to year-end that was dependent on future services to be performed

K.The Company adjusted goodwill downward to correctly use the share price as of the date of the Impact, 2WR, and Emerald acquisitions to value the equity portion of the acquisition consideration

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation, Principles of Consolidation and Business Combinations

These consolidated financial statements include the accounts of urban-gro, Inc. and its wholly owned subsidiaries. They are presented in United States dollars and have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC for condensed financial reporting. The condensed consolidated financial statements are audited and, in the Company’s opinion, include all adjustments, consisting of normal recurring adjustments and accruals necessary for a fair presentation of the Company’s condensed consolidated balance sheets, condensed consolidated statements of operations and comprehensive loss, condensed consolidated statements of shareholders’ equity and condensed consolidated statements of cash flows for the periods presented.

Acquisitions of businesses are accounted for using the acquisition method of accounting (Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 805-10-225). The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair values of the assets transferred, liabilities incurred to the former owners of the acquired entities and the equity interests issued in exchange for control of the acquired entities. Acquisition related costs are recognized in net income (loss) as incurred.

Use of Estimates

In preparing consolidated financial statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the reported periods. Actual results could differ from those estimates. Significant estimates include estimated revenues earned under percentage of completion construction contracts, professional

service contracts, estimated useful lives and potential impairment of long-lived assets and goodwill, inventory write-offs, allowance for deferred tax assets and deferred tax liabilities, and allowance for bad-debt.

Reclassification

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Balance Sheet Classifications

The Company includes in current assets and liabilities the following amounts that are in connection with construction contracts that may extend beyond one year: contract assets and contract liabilities (including retainage invoiced to customers contingent upon anything other than the passage of time), capitalized costs to fulfill contracts, retainage payable to sub-contractors and accrued losses on uncompleted contracts. A one-year time period is used to classify all other current assets and liabilities when not otherwise prescribed by the applicable accounting principles.

Contract Assets and Liabilities

The timing between when Company collects cash from its construction design-build customers can create a contract asset or contract liability. Please refer to Note 3 - Revenue from Contracts with Customers for further discussion of the Company's contract assets and liabilities.

Functional and Reporting Currency and Foreign Currency Translation

The functional and reporting currency of the Company and its subsidiaries is US dollars. All transactions in currencies other than US dollars are translated into US dollars on the date of the transaction. Any exchange gains and losses related to these transactions are recognized in the current period earnings as other income (expense).

Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable, promissory note and other current assets and liabilities. We value our financial assets and liabilities using fair value measurements. Fair value is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are categorized based on whether the inputs are observable in the market and the degree that the inputs are observable. The categorization of financial instruments within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement. The hierarchy is prioritized into three levels (with Level 3 being the lowest) defined as follows:

•Level 1: Quoted prices in active markets for identical assets or liabilities that the entity has the ability to access.

•Level 2: Observable inputs other than prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated with observable market data.

•Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

The carrying amount of our cash, accounts receivable, accounts payable, promissory note, and other current assets and liabilities in our consolidated financial statements approximates fair value because of the short-term nature of the instruments as of December 31, 2023 and 2022. Investments in non-marketable equity securities are carried at cost less other-than-temporary impairments as of December 31, 2023 and 2022.

There have been no changes in Level 1, Level 2, and Level 3 categorizations and no changes in valuation techniques for these assets or liabilities for the years ended December 31, 2023 and 2022.

Cash

The Company considers all highly liquid short-term cash investments with an original maturity of three months or less to be cash equivalents. As of December 31, 2023 and 2022, the Company did not maintain any cash equivalents. The Company maintains cash with financial institutions that may from time to time exceed federally-insured limits. The Company has Insured Cash Sweep programs in place with its financial institutions to ensure that these excess funds are also federally-insured. There are no restricted or compensating cash balances as of December 31, 2023.

Accounts Receivable, Net

Trade Accounts Receivable

Trade accounts receivables are carried at the original invoiced amounts less an estimate of expected credit losses. The Company estimates its allowance for credit losses and the related expected credit loss based upon the Company's historical credit loss experience and the age of the account adjusted for asset-specific risk characteristics, current economic conditions, relationship with the customer, and reasonable forecasts. Credit is generally extended on a short-term basis, thus current receivables do not bear interest. The Company reviews a customer’s credit history before extending credit to the customer. If the financial condition of its customers were to deteriorate, resulting in an impairment of their ability to make payments, an increase in the expected credit losses balance would be required. A provision is made against accounts receivable to the extent they are considered unlikely to be collected. Occasionally, the Company will write off bad-debt directly to the bad-debt expense account when the balance is determined to be uncollectible. The Company's allowance for expected credit losses for the years ended December 31, 2023 and 2022 was $284,745 and $103,653, respectively.

Non-trade Accounts Receivable

Non-trade accounts receivable consist of amounts due to the Company outside of our normal operating business. Non-trade accounts receivable as of December 31, 2023 were primarily comprised of the remaining Indemnified Loss receivable from the majority shareholder of Emerald further detailed in Note 1 – Organization, Acquisitions, and Liquidity. As of December 31, 2022, non-trade accounts receivables was primarily comprised of a receivable related to litigation involving fraudulent wire transactions of $2,400,000. On March 27, 2023, the Company entered into an agreement to settle this litigation and received a cash payment of $2,400,000 on March 27, 2023. In connection with the settlement the Company recorded an impairment in the fourth quarter of 2022 of $950,576.

Property, Plant, and Equipment, net

Property and equipment is stated at cost less accumulated depreciation and impairment. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes. The Company uses other depreciation methods (generally accelerated) for tax purposes where appropriate. No impairment charges were recorded for the years ended December 31, 2023 and 2022.

The estimated useful lives for significant property and equipment categories are as follows:

Computer and technology equipment	3 years
Furniture and equipment	5 years
Leasehold improvements	Lease term
Vehicles	3 years
Other equipment	3 or 5 years
Software	3 years

Operating Lease Right of Use Assets

The Company accounts for leases in accordance with ASC 842. The Company determines whether a contract is a lease at contract inception or for a modified contract at the modification date. At inception or modification, the Company recognizes right-of-use ("ROU" assets and related lease liabilities on the Consolidated Balance Sheets for all leases greater than one-year in duration. Lease liabilities and their corresponding ROU assets are initially measured at the present value of the unpaid lease payments as of the lease commencement date. If the lease contains a renewal and/or termination option, the exercise of the option is included in the term of the lease if the Company is reasonably certain that a renewal or termination option will be exercised. As the Company's leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate ("IBR") based on the information available at the commencement date of the respective lease to determine the present value of the future payments. The IBR is determined by estimating what it would cost the Company to borrow a collateralized amount equal to the total lease payments over the lease term based on the contractual terms of the lease and the location of the leased asset.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term in equal amounts of rent expense attributed to each period during the term of the lease, regardless of when actual payments are made. This generally results in rent expense in excess of cash payments during the early years of a lease and rent expense less than cash payments in later years. The difference between rent expense recognized and actual rental payments is typically represented as the spread between the ROU asset and lease liability.

The Company does not recognize ROU assets and lease liabilities for short-term leases that have an initial term of 12 months or less. The Company recognizes the lease payments associated with short-term leases as an expense on a straight-line basis over the lease term.

Operating lease right of use assets are stated at cost less accumulated depreciation, amortization and impairment. The Company has various equipment and office leases with an imputed annual interest rate of 8%.

Intangible Assets

The Company’s intangible assets, consist of legal fees for application of patents and trademarks, as well as customer relationships, trademarks and trade names and backlog from the acquisitions of DVO, 2WR and Emerald. Our patents and trademarks are recorded at cost, while the intangibles from our acquisitions are recorded at fair value and are amortized using the straight-line method over an estimated life, generally 5 years for patents, 5 years for trademarks and trade names, 7 years for customer relationships, and 1 year for backlog. Intangible assets are reported in the "Intangible Asset" line on the balance sheet.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination. Goodwill is not amortized but is tested for impairment annually on October 1 and at any time when events or circumstances suggest impairment may have occurred.

The testing for impairment consists of a comparison of the fair value of the reporting unit with its carrying amount. If the carrying amount of the reporting unit, including goodwill, exceeds the fair value, an impairment will be recognized equal to the difference between the carrying value of the reporting unit’s goodwill and the implied fair value of the goodwill. In testing goodwill for impairment, we determine the estimated fair value of our reporting units based upon a discounted future cash flow analysis. Goodwill, trade names and patents are our only indefinite-lived intangible assets. Definite-lived intangible assets are amortized using the straight-line method over the shorter of their contractual term or estimated useful lives.

Impairment of Long-lived Assets

The Company evaluates potential impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. An impairment will be recognized as the amount by which the carrying amount of a long-lived asset exceeds its fair value.

Investments

Investments without readily determinable fair values and for which the Company does not have the ability to exercise significant influence are accounted for at cost with adjustments for observable changes in prices or impairments.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criteria standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given to whether that control happens over time or not. Determination of criteria (3) and (4) are based on judgments regarding the fixed nature of the selling prices of the services and products delivered and the collectability of those amounts.

The Company derives revenue predominately from the sale of equipment systems, services, construction design-build, and from other various immaterial contracts with customers. Please refer to Note 3 - Revenue from Contracts with Customers for additional discussion.

Customer Deposits

For equipment systems contracts, the Company’s policy is to collect deposits from customers at the beginning of the contract. Please refer to Note 3 - Revenue from Contracts with Customers for further discussion of the Company's customer deposits.

Cost of Revenues

The Company’s policy is to recognize cost of revenues in the same manner as, and in conjunction with, revenue recognition. The Company’s cost of revenues includes the costs directly attributable to revenue recognized and includes expenses related to the

purchasing of products and providing services, costs related to construction design-build contracts, fees for third-party commissions, and shipping costs.

Advertising Costs

The Company expenses advertising costs in the periods the costs are incurred. Prepayments made under contracts are included in prepaid expenses and expensed when the advertisement is run. Total advertising expense incurred for the years ended December 31, 2023 and 2022 was $516,522 and $865,022, respectively.

Stock-Based Compensation

The Company periodically issues restricted stock units ("RSUs") and stock options to employees, directors, and consultants in non-capital raising transactions for fees and services. The Company accounts for RSUs and options issued to employees and directors with the award being measured at its fair value at the date of grant and amortized ratably over the estimated service period. The Company accounts for stock issued to consultants with the value of the stock compensation based upon the measurement date as determined at the grant date of the award.

Warrants

The Company estimates the fair value of warrants at the respective balance sheet dates using the Black-Scholes option-pricing model based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term, risk-free interest rate, and expected volatility of the price of the underlying common stock. There is a moderate degree of subjectivity involved when using option pricing models to estimate the warrants and the assumptions used in the Black-Scholes option-pricing model are moderately judgmental.

Income Taxes

The Company files income tax returns in the United States, Canada, and the Netherlands, and state and local tax returns in applicable jurisdictions. Provisions for current income tax liabilities, if any, would be calculated and accrued on income and expense amounts expected to be included in the income tax returns for the current year. Income taxes reported in earnings, if any, would also include deferred income tax provisions.

Deferred income tax assets and liabilities, if any, would be computed on differences between the financial statement bases of assets and liabilities at the enacted tax rates. Changes in deferred income tax assets and liabilities would be included as a component of income tax expense. The effect on deferred income tax assets and liabilities attributable to changes in enacted tax rates would be charged or credited to income tax expense in the period of enactment. Valuation allowances would be established for certain deferred tax assets when realization is not likely.

Assets and liabilities would be established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions, in the judgment of the Company, do not meet a more-likely-than-not threshold based on the technical merits of the positions. Valuation allowances would be established for certain deferred tax assets when realization is not likely.

Loss per Share

The Company computes net loss per share by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share would be computed by dividing net loss by the weighted-average of all potentially dilutive shares of common stock that were outstanding during the periods presented. The diluted earnings per share calculation is not presented as it results in an anti-dilutive calculation of net loss per share.

The treasury stock method would be used to calculate diluted earnings per share for potentially dilutive stock options and share purchase warrants. This method assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants would be used to purchase common shares at the average market price for the period.

Recently Issued Accounting Pronouncements

From time to time, the Financial Accounting Standards Board (the "FASB") or other standards setting bodies issue new accounting pronouncements. The FASB issues updates to new accounting pronouncements through the issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, the Company believes that the impact of recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on the Company’s financial statements upon adoption.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU 2016-13"), changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses based upon a company's historical credit loss experience, adjusted for asset-specific risk characteristics, current economic conditions, and reasonable forecasts, rather than incurred losses as required previously by the other-than-temporary impairment model. ASU 2016-13 applies to most financial assets measured at amortized cost and certain other instruments, including trade and other

receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures. ASU 2016-13 was effective January 1, 2020, and the Company adopted this standard effective January 1, 2023. The adoption of this standard primarily applied to the valuation of the Company's accounts receivable. The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements or disclosures, and the Company's estimate of expected credit losses as of January 1, 2023, using the expected credit loss evaluation process described above, resulted in no adjustments to the provision for credit losses and no cumulative-effect adjustment to Retained earnings (deficit) in the Consolidated Balance Sheets on the adoption date of the standard.

In November 2023, the FASB issued Accounting Standards Update (“ASU”) No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (ASU 2023-07), which requires an enhanced disclosure of significant segment expenses on an annual and interim basis. This ASU will be effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company has decided to early adopt ASU 2023-07 by incorporating the disclosure requirements in Note 19 - Segments.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires greater disaggregation of information in the effective tax rate reconciliation, income taxes paid disaggregated by jurisdiction, and certain other amendments related to income tax disclosures. This guidance will be effective for fiscal years beginning after December 15, 2024. The Company will be evaluating the impact of this ASU on its consolidated financial statements.

There are other various updates recently issued by the FASB, most of which represented technical corrections to the accounting literature or application to specific industries and are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Management has reviewed all other recently issued, but not yet effective, accounting pronouncements and does not believe the future adoption of any such pronouncements may be expected to cause a material impact on the Company's financial condition or the results of our operations.

NOTE 3 – REVENUE FROM CONTRACTS WITH CUSTOMERS

The Company recognizes revenue predominantly from the sale of equipment systems, services, construction design-build, and from other various immaterial contracts with customers from its CEA and Commercial sectors. The table below presents the revenue by source for the years ended December 31, 2023 and 2022:

	For the year ended December 31, 2023
	CEA			Commercial			Total			Relative Percentage
Equipment systems	$	12,720,873		$	—		$	12,720,873		18	%
Services	8,305,679			3,614,241			11,919,920			17	%
Construction design-build	4,391,087			40,170,696			44,561,783			64	%
Other	717,472			—			717,472			1	%
Total revenues	$	26,135,111		$	43,784,937		$	69,920,048		100	%
Relative percentage	37		%	63		%	100		%

	For the year ended December 31, 2022
	CEA			Commercial			Total			Relative Percentage
Equipment systems	$	33,119,480		$	—		$	33,119,480		50	%
Services	8,016,433			5,068,210			13,084,643			20	%
Construction design-build	1,664,538			17,416,208			19,080,746			29	%
Other	1,009,830			—			1,009,830			2	%
Total revenues	$	43,810,281		$	22,484,418		$	66,294,699		100	%
Relative percentage	66		%	34		%	100		%

Under ASC Topic 606, Revenue from Contracts with Customers, a performance obligation is a promise in a contract with a customer, to transfer a distinct good or service to the customer. Equipment systems contracts are lump sum contracts, which require the performance of some, or all, of the obligations under the contract for a specified amount. Service revenue contracts, which include both architectural and engineering designs, generally contain multiple performance obligations which can span across multiple phases of a project and are generally set forth in the contract as distinct milestones. The majority of construction design-build contracts have a

single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contracts and, therefore, not distinct. Some contracts have multiple performance obligations, most commonly due to the contract covering multiple phases of the project life cycle (design and construction).

The transaction price for service contracts and construction design-build contracts is allocated to each distinct performance obligation and recognized as revenue when, or as, each performance obligation is satisfied. When there are multiple performance obligations under the same service contract, the Company allocates the transaction price to each performance obligation based on the standalone selling price. In general, payment is fixed at the time of the contract and are not subject to discounts, incentives, payment bonuses, credits, and penalties, unless negotiated in an amendment.

When establishing the selling price to the customer, the Company uses various observable inputs. For equipment systems, the stand-alone selling price is determined by forecasting the expected costs of the products, and then adding in the appropriate margins established by the contract. For service revenues and construction design-build revenues, the Company estimates the selling price by reference to certain physical characteristics of the project, which include the facility size, the complexity of the design, and the mechanical systems involved, which are indicative of the scope and complexity for those services. Significant judgments are typically not required with respect to the determination of the transaction price based on the nature of the selling prices of the products and services delivered and the collectability of those amounts. Accordingly, the Company does not consider estimates of variable consideration to be constrained.

The Company recognizes equipment systems, services, and construction design-build revenues when the performance obligation with the customer is satisfied. For satisfaction of equipment system revenues, the Company recognizes revenue when control of the promised good transfers to the customer, which predominately occurs at the time of shipment. For service revenues, satisfaction occurs as the services related to the distinct performance obligations are rendered or completed in exchange for consideration in an amount for which the Company is entitled. The time period between recognition and satisfaction of performance obligations is generally within the same reporting period; thus, there are no material unsatisfied or partially unsatisfied performance obligations for product or service revenues at the end of the reporting period.

Construction design-build revenues are recognized as the Company's obligations are satisfied over time, using the ratio of project costs incurred to estimated total costs for each contract because of the continuous transfer of control to the customer as all of the work is performed at the customer’s site and, therefore, the customer controls the asset as it is being constructed. This continuous transfer of control to the customer is further supported by clauses in the contract that allow the customer to unilaterally terminate the contract for convenience, pay the Company for costs incurred plus a reasonable profit and take control of any work in process. This cost-to-cost measure is used for our construction design-build contracts because management considers it to be the best available measure of progress on these contracts.

Contract modifications through change orders, claims and incentives are routine in the performance of the Company’s construction design-build contracts to account for changes in the contract specifications or requirements. In most instances, contract modifications are not distinct from the existing contract due to the significant integration of services provided in the contract and are accounted for as a modification of the existing contract and performance obligation. Either the Company or its customers may initiate change orders, which may include changes in specifications or designs, manner of performance, facilities, equipment, materials, sites and period of completion of the work. Change orders that are unapproved as to both price and scope are evaluated as claims. The Company considers claims to be amounts in excess of approved contract prices that the Company seeks to collect from its customers or others for customer-caused delays, errors in specifications and designs, contract terminations, change orders that are either in dispute or are unapproved as to both scope and price, or other causes of unanticipated additional contract costs.

The timing of when the Company bills customers on long-term construction design-build contracts is generally dependent upon agreed-upon contractual terms, which may include milestone billings based on the completion of certain phases of the work, or when services are provided. When as a result of contingencies, billings cannot occur until after the related revenue has been recognized; the result is unbilled revenue, which is included in contract assets. Additionally, the Company may receive advances or deposits from customers before revenue is recognized; the result is deferred revenue, which is included in contract liabilities. Retainage subject to conditions other than the passage of time are included in contract assets and contract liabilities.

Contract assets represent revenues recognized in excess of amounts paid or payable (contract receivables) to the Company on uncompleted contracts. Contract liabilities represent the Company’s obligation to perform on uncompleted contracts with customers for which the Company has received payment or for which contract receivables are outstanding.

The following tables provide information about contract assets and contract liabilities from contracts with customers:

	December 31,
	2023		2022
Contract assets	(as restated)		(as restated)
Revenue recognized in excess of amounts paid or payable to the Company on uncompleted contracts (contract receivables), excluding retainage	$	7,729,531	$	2,874,141
Retainage included in contract assets due to being conditional on something other than solely passage of time	707,036		130,141
Total contract receivables	$	8,436,567	$	3,004,282

	December 31,
	2023		2022
Contract Liabilities	(as restated)		(as restated)
Payments received or receivable (contract receivables) in excess of revenue recognized on uncompleted contracts (contract liabilities)	$	3,895,826	$	2,036,606
Retainage included in contract liabilities due to being conditional on something other than solely passage of time	54,307		—
	$	3,950,133	$	2,036,606

For equipment systems contracts, the Company’s predominant policy is to collect deposits from customers at the beginning of the contract and the balance of the contract payment prior to shipping. The Company does, in some cases, collect deposits or retainers as down payments on service contracts. Consumable products orders may be paid for in advance of shipment or for recurring customers with credit, payment terms of 30 days or less may be extended by the Company. Customer payments that have been collected prior to the performance obligation being recognized are recorded as customer deposit liabilities on the balance sheet. When the performance obligation is satisfied and all the criteria for revenue recognition are met, revenue is recognized. In certain situations when the customer has paid the deposit and services have been performed but the customer chooses not to proceed with the contract, the Company is entitled to keep the deposit and recognize revenue.

NOTE 4 – RELATED PARTY TRANSACTIONS

A director of the Company is an owner of Cloud 9 Support, LLC (“Cloud 9”) and Potco LLC (“Potco”). Cloud 9 purchases materials from the Company for use with its customers and Potco purchases equipment from the Company for use in its cultivation facility. Another director of the Company is working on a vertical farming innovation model with a group of CEA experts (“the CEA Consortium”). The CEA Consortium contracts services from the Company related to their business model. The table below presents the revenues for these related party entities for the twelve months ended December 31, 2023, and 2022:

	Twelve Months Ended December 31,
	2023		2022
Cloud 9	$	462	$	13,383
Potco	987,268		12,480
CEA Consortium	245,000		—
Total revenues from related party transactions	$	1,232,730	$	25,863

The table below presents the accounts receivable from these related party entities as of December 31, 2023, and December 31, 2022:

	December 31,
	2023		2022
Cloud 9	$	—	$	3,920
Potco	163,088		20,174
CEA Consortium	245,000		—
Total accounts receivable due from related party transactions	$	408,088	$	24,094

NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepayments and other assets are comprised of prepayments paid to vendors to initiate orders and prepaid services and fees. The prepaid balances are summarized as follows:

	As of December 31,
	2023		2022
Vendor prepayments	$	130,522	$	1,882,760
Prepaid services and fees	1,168,309		1,205,756
Deferred financing cost (See Note 10 - Debt)	181,118		—
Inventories	228,858		320,372
Other assets	42,757		38,766
Total prepaid expenses and other current assets	$	1,751,564	$	3,447,654

Inventories

Inventories, consisting primarily of finished goods, are stated at the lower of cost or net realizable value, with cost determined using the weighted-average cost method. The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold at the realization of change in value. Once written down, inventories are carried at this lower basis until sold or scrapped.

NOTE 6 - PROPERTY PLANT & EQUIPMENT, NET

Property Plant and Equipment balances are summarized as follows:

	As of December 31,
	2023		2022
Computers and technology equipment	$	294,322	$	232,405
Furniture and fixtures	325,485		234,389
Leasehold improvements	228,760		306,719
Vehicles	432,823		456,797
Software	1,087,569		685,580
Other equipment	145,950		58,525
Accumulated depreciation	(1,095,516)		(667,269)
Total property plant and equipment, net	$	1,419,393	$	1,307,146

Depreciation expense for the years ended December 31, 2023 and 2022 totaled $580,487 and $423,286, respectively.

NOTE 7 – INVESTMENTS

The components of investments are summarized as follows:

XS Financial

On October 30, 2021, the Company participated in a convertible note offering of Xtraction Services, Inc., a/k/a XS Financial Inc. (CSE: XSF) (OTCQB: XSHLF) ("XSF"), a specialty finance company providing capital expenditure financing solutions, including equipment leasing, to CEA companies in the United States. The Company invested $2,500,000 of a total $43,500,000 raised by XSF. Prior to any Nasdaq listing, the investment incurs 9.5% interest payable, of which, 7.5% is cash interest and 2.0%. is interest paid in kind. Subsequent to any Nasdaq listing, the investment incurs 8.0% interest. The debt matures on October 28, 2023, with a one-year option at the sole discretion of XSF to extend the maturity date. In addition, the Company received 1.25 million warrants denominated in Canadian dollars ("C$") with a C$0.45 share price as subject to the warrant instrument. No value was attributed to the warrants at the time of the investment. In August 2023, the Company entered into an agreement to sell back its investment to XSF for $2.3 million and cancel the warrants. The Company received the $2.3 million in proceeds on August 30, 2023. In connection with the agreement to sell the investment, the Company recorded an impairment loss of $0.3 million.

NOTE 8 – GOODWILL & INTANGIBLE ASSETS

Goodwill

The Company has recorded goodwill in conjunction with acquisitions it has completed. The goodwill balances as of December 31, 2023 and 2022 were $9,688,975 and $15,019,671. Goodwill is not amortized. During the year ended December 31, 2023, the Company recorded impairment charges of $5,330,696 to goodwill and recorded no impairment charges to goodwill for the year ended December 31, 2022.

Intangible Assets Other Than Goodwill

Intangible assets as of December 31, 2023 and 2022 consisted of the following:

	As of December 31, 2023
	Cost		Accumulated Amortization		Net Book Value
Finite-lived intangible assets:
Customer relationships	$	3,269,201	$	(1,004,743)	$	2,264,458
Trademarks and trade names	1,778,000		(663,417)		1,114,583
Backlog	707,400		(707,400)		—
Licenses	16,437		(16,437)		—
Total finite-lived intangible assets:	5,771,038		(2,391,997)		3,379,041
Indefinite-lived intangible assets:
Trade name	28,291		—		28,291
Patents	44,276		—		44,276
Total indefinite-lived intangible assets	72,567		—		72,567
Total intangible assets, net	$	5,843,605	$	(2,391,997)	$	3,451,608

	As of December 31, 2022
	Cost		Accumulated Amortization		Net Book Value
Finite-lived intangible assets:
Customer relationships	$	4,212,100	$	(401,997)	$	3,810,103
Trademarks and trade names	1,778,000		(307,817)		1,470,183
Backlog	707,400		(626,003)		81,397
Licenses	16,437		—		16,437
Total finite-lived intangible assets:	6,713,937		(1,335,817)		5,378,120
Indefinite-lived intangible assets:
Trade name	28,291		—		28,291
Patents	44,276		—		44,276
Total indefinite-lived intangible assets	72,567		—		72,567
Total Intangible assets, net	$	6,786,504	$	(1,335,817)	$	5,450,687

Amortization expense for intangible assets subject to amortization for the years ended December 31, 2023 and 2022 was $1,056,180 and $1,059,779, respectively. During the year ended December 31, 2023, the Company recorded impairment charges of $942,899 to intangible assets and recorded no impairment charges to intangible assets for the year ended December 31, 2022.

The estimated future amortization expense for intangible assets subject to amortization at December 31, 2023, is summarized below:

Year ending December 31,	Estimated Future Amortization Expense
2024	$	779,955
2025	$	779,948
2026	$	738,364
2027	$	513,714
2028	$	405,306
2029	$	161,754
Total estimated future amortization expense	$	3,379,041

NOTE 9 – ACCRUED EXPENSES

Accrued expenses are summarized as follows:

	December 31,
	2023		2022
Accrued operating expenses	$	277,987	$	446,286
Accrued wages and related expenses	1,349,195		616,297
Business development accrual	376,816		486,908
Accrued interest expense	26,000		—
Accrued 401(k)	66,642		262,599
Accrued tax payable	3,187,638		3,404,424
Total accrued expenses	$	5,284,278	$	5,216,514

Accrued tax payable is comprised of amounts due to various US states and Canadian provinces for 2017 through 2023.

NOTE 10 – NOTES PAYABLE AND LINE OF CREDIT

The table below shows outstanding notes payable and line of credit amounts as of December 31, 2023 and 2022.

	December 31,
	2023		2022
Line of credit	$	2,500,000	$	—
DVO note	575,240		3,832,682
Other financing agreements	129,600		—
Total	$	3,204,840	$	3,832,682
Less current maturities	(3,204,840)		(3,832,682)
Long Term	—		—

On December 13, 2023, UG Construction, Inc. d/b/a Emerald Construction Management, Inc. (“UG Construction”), a wholly owned subsidiary of the Company, entered into an interest only asset based revolving Loan Agreement (the “Line of Credit”) with Gemini Finance Corp. (“Lender”) pursuant to which Lender extended to UG Construction a secured line of credit in an amount not to exceed $10,000,000, to be used to assist UG Construction and the Company with cash management. Lender will consider requests for advances under the Line of Credit, which Lender may accept or reject in its discretion, until September 12, 2024 (the “Initial Term”), subject to an automatic extension for an additional nine-month term until May 12, 2025, provided that UG Construction is in compliance with all the terms of the applicable loan documents and Lender has not sent a written notice of non-renewal at least 60 days prior to expiration of the Initial Term. The Line of Credit contains standard events of default and representations and warranties by UG Construction and the Lender and the Company have entered into a Continuing Guaranty pursuant to which the Company will guarantee repayment of the loans associated with the Line of Credit (the “Guaranty Agreement”).

Loans made under the Line of Credit shall be evidenced by a Secured Promissory Note - Revolving issued by UG Construction to the Lender (the “Promissory Note”), and each draw on the Promissory Note shall be due and payable on or before 180 days after such draw is funded to UG Construction; provided that, such draw is also subject to a mandatory prepayment upon UG Construction’s receipt of payment for any invoice previously submitted and approved for financing by Lender. Lender will receive a security interest in UG Construction’s Collateral (as defined in the “Security Agreement” entered into as part of the Line of Credit). The Promissory Note earns interest at a monthly rate of one and seventy-five hundredths percent (1.75%).

In connection with entering in the Line of Credit, the Company has agreed to issue to Bancroft Capital, LLC (the “Placement Agent”) cash and warrant compensation in two separate tranches, the first being earned upon closing of the Line of Credit and the remainder of which will be due if and when UG Construction draws more than $4,500,000 from the Line of Credit. Both instances are detailed as follows:

    1.    At closing of the Line of Credit, the Placement Agent earned a cash fee of $200,000. In addition to the cash fee, the Company will issue to the Placement Agent or its designees, $200,000 worth of warrants (the “Placement Agent’s Warrants”) to purchase the Company’s common stock at a price per share equal to 110% of the daily volume weighted average closing price of the Company’s common stock on the Nasdaq exchange for a period consisting of ten (10) consecutive trading days ending on and inclusive of the trading day of the Closing. The Placement Agent’s Warrants will be exercisable at any time and from time to time, in whole or in part, during the four and a half-year period commencing six (6) months from the date of issuance. The Placement Agent’s Warrants will provide for registration rights (including a one-time demand registration right and unlimited piggyback rights), cashless exercise and customary anti-dilution provisions (for stock dividends and splits) and anti-dilution protection (adjustment in the number and price of such warrants and the shares underlying such warrants) resulting from corporate events (which would include dividends, reorganizations, mergers, etc.).

    2.    If and when Emerald draws more than $4,500,000 from the Line of Credit, the Placement Agent will earn an additional cash fee of $200,000, and an additional $200,000 worth of Placement Agent’s Warrants to purchase the Company’s common stock at a price per share equal to 110% of the daily volume weighted average closing price of the Company’s common stock on the Nasdaq exchange for a period consisting of ten (10) consecutive trading days ending on and inclusive of the trading day of the date that the draws exceeding $4,500,000 were to take place.

As part of the Asset Purchase Agreement of DVO, a non-negotiable promissory note in the aggregate principal amount of $3,806,250, payable to DVO was issued effective November 1, 2022 (the "DVO Promissory Note"). The principal amount, together with the simple interest accrued on the unpaid principal amount outstanding was to be paid by the Company on a quarterly basis for the first four consecutive quarters, with the first payment paid in January 2023, and the remaining three payments due ten days following the end of each subsequent fiscal quarter thereafter until the earlier of the end of the fourth full fiscal quarter following the closing date December 31, 2023 or the payment in full of all amounts due. In the third quarter of 2023, a portion of that quarter’s note payment was extended to the first quarter of 2024. The DVO Promissory Note may be prepaid in whole or in part at any time without premium or penalty; provided, that each payment shall be accompanied by payment of all unpaid costs, fees and expenses, if any, which are due plus all accrued and unpaid interest due as of the date of such prepayment.

The outstanding principal balance under the DVO Promissory Note shall bear simple interest at a variable rate per annum equal to the rate of interest most recently published by JP Morgan Chase & Co. as the "prime rate" (the "Prime Rate"). Initially, interest will accrue at the Prime Rate as of the date of the DVO Promissory Note. The interest rate will be adjusted on a quarterly basis as of the first day of each full fiscal quarter following the first full fiscal quarter after the closing date to the then current Prime Rate. In connection with the extension of the DVO Promissory Note payment to the first quarter of 2024, the interest rate was revised to a fixed rate of 10%, with principal and interest to be paid on a weekly basis.

The other financing agreements relate to short-term financing of the Company's insurance policies and are at an average interest rate of 9.89%.

NOTE 11 – RIGHT OF USE ASSETS AND LIABILITIES

As of December 31, 2023 and 2022, the Company has seven operating type leases with an imputed annual interest rate of 8%. Each of the Company's operating type leases are utilized as office space with one lease also including a warehouse for inventory. Five of the leases were acquired by the Company in connection with the acquisitions of 2WR, Emerald, and DVO. The remaining lease terms range from less than one year to 5 years, as of December 31, 2023. As of December 31, 2023 and 2022, right of use assets were $2,041,217 and $2,618,825, respectively, and for the years ended December 31, 2023 and 2022 lease expense was $460,347 and $192,955, respectively.

The following is a summary of operating right-of-use lease liabilities:

	As of December 31,
	2023		2022
Operating lease liabilities related to right of use liabilities	$	2,087,503	$	2,645,598
Less current portion	(707,141)		(600,816)
Long term	$	1,380,362	$	2,044,782

The following is a schedule showing total future minimum lease payments for the Company's operating leases:

Year ending December 31,	Minimum Lease Payments
2024	$	754,076
2025	573,133
2026	404,751
2027	346,812
2028	253,415
Thereafter	82,488
Total minimum lease payments	$	2,414,675
Less: Amount representing interest	$	(327,172)
Net lease obligations	$	2,087,503

NOTE 12 - COMMITMENTS AND CONTINGENCIES

From time to time, the Company is involved in routine litigation that arises in the ordinary course of business. There are no legal proceedings for which management believes the ultimate outcome would have a material adverse effect on the Company’s results of operations and cash flows.

On August 11, 2023, the Company entered into a settlement agreement (the “Settlement Agreement”) with Crest Ventures, LLC (“Crest”) and Andrew Telsey to settle all claims in the litigation filed in the District Court for Arapahoe County, Colorado, Case No. 2021CV31301. Pursuant to the Settlement Agreement, the Company paid $1,500,000 to Crest on September 7, 2023. In connection with this settlement, the Company recorded a loss in the second quarter of 2023 of $1,500,000 in accordance with GAAP related to loss contingencies.

NOTE 13 – RISKS AND UNCERTAINTIES

Concentration Risk

The tables below show customers who account for 10% or more of the Company’s total revenues and 10% or more of the Company’s accounts receivable for the periods presented:

Customers exceeding 10% of revenue

	For the Year Ended December 31,
	2023		2022
Customers Exceeding 10% of Revenue/$:
C000001462	*		10	%
C000001140	*		13	%
C000002187	28	%	17	%
C000002463	15	%	*
	43	%	40	%

Customers exceeding 10% of accounts receivable

	For the Year Ended December 31,
	2023		2022
C000002151	*		10	%
C000002187	57	%	24	%

The table below shows vendors who account for 10% or more of the Company’s total purchases and 10% or more of the Company’s accounts payable for the periods presented:

Vendors exceeding 10% of purchases

	For the Year Ended December 31,
	2023		2022
V000001029	*		13	%
V000002275	11	%	*

Vendors exceeding 10% of accounts payable:

	For the Year Ended December 31,
	2023		2022
V000002275	13	%	*
V000001910	*		11	%

Foreign Exchange Risk

Although our revenues and expenses are expected to be predominantly denominated in United States dollars, we may be exposed to currency exchange fluctuations. Recent events in the global financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S. dollar, the Canadian dollar, the Euro, and the currency of other regions in which we may operate may have a material adverse effect on our business, financial condition and operating results. We may, in the future, establish a program to hedge a portion of our foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if we develop a hedging program, it may not mitigate currency risks.

NOTE 14 – STOCK-BASED COMPENSATION

Stock-based compensation expense for the years ended December 31, 2023 and 2022 was $2,199,046 and $2,571,785, respectively based on the vesting schedule of the Restricted Stock Units ("RSUs") and Stock Options ("Options"). During the year ended December 31, 2023, 503,699 RSUs vested and 332,984 shares of common stock were issued to employees and directors related to vesting of RSUs. During the year ended December 31, 2022, 96,170 RSUs vested and 87,442 shares of common stock were issued to employees and directors related to vesting of RSUs. No cash flow effects are anticipated for stock grants.

The Company's shareholders approved the 2021 Omnibus Stock Incentive Plan, as amended (the “Omnibus Incentive Plan”), which provides for the issuance of incentive stock options, stock grants and stock-based awards to employees, directors, and consultants of the Company to reward and attract employees and compensate the Company’s Board of Directors (the “Board”) and vendors when applicable, up to an aggregate 1,100,000 authorized shares of common stock. In 2023, an additional $1,200,000 shares were authorized by the shareholders. The Omnibus Incentive Plan is administered by the Company's Board. Grants of RSUs under the Omnibus Incentive Plan are valued at no less than the market price of the stock on the date of grant. The fair value of the options is calculated using the Black-Scholes pricing model based on the estimated market value of the underlying common stock at the valuation measurement date, the remaining contractual term of the options, risk-free interest rate and expected volatility of the price of the underlying common stock of 100%. There is a moderate degree of subjectivity involved when estimating the value of stock options with the Black-Scholes option pricing model as the assumptions used are moderately judgmental. Stock grants and stock options are sometimes offered as part of an employment offer package, to ensure continuity of service or as a reward for performance. Stock grants and stock options typically require a one to three year period of continued employment or service performance before the stock grant of RSUs or stock option vests. The maximum contractual term for options granted is under the Omnibus Incentive Plan.

The following schedule shows stock grant activity for the years ended December 31, 2023 and 2022:

	Number of Shares
Grants unvested as of December 31, 2021	199,282
Grants awarded	531,326
Forfeiture/cancelled	(129,429)
Grants vested and issued	(87,442)
Grants vested unissued at year-end	(8,728)
Grants unvested as of December 31, 2022	505,009
Grants awarded	628,523
Forfeiture/Cancelled	(50,066)
Grants vested and issued	(397,210)
Grants vested unissued at year-end	(106,844)
Grants unvested as of December 31, 2023	579,412

The following table summarizes grants of RSU vesting periods:

Number of Shares	Unrecognized Stock Compensation Expense		As of December 31,
240,060	$	911,704	2024
182,090	170,045		2025
157,262	168,497		2026
579,412	$	1,250,246

The following schedules show stock option activity for the years ended December 31, 2023 and 2022:

	Number of Shares	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price
Stock options outstanding as of December 31, 2021	641,337	6.49	$6.68
Issued	43,161	0.00	$8.64
Exercised	(4,555)	0.00	$6.00
Forfeited	(78,516)	0.00	$6.55
Stock options outstanding at December 31, 2022	601,427	7.85	$6.84
Stock options exercisable at December 31, 2022	511,991	0.00	$6.58

The following table summarizes stock option vesting periods under the Incentive Plans:

	Number of Shares	Weighted Average Remaining Life (Years)	Weighted Average Exercise Price
Stock options outstanding as of December 31, 2022	601,427	5.49	$6.84
Issued	—	0.00	$0.00
Exercised	—	0.00	$0.00
Forfeited	(99,598)	0.00	$7.01
Stock options outstanding at December 31, 2023	501,829	4.67	$6.81
Stock options exercisable at December 31, 2023	471,288	0.00	$6.70

The aggregate intrinsic value of the stock options outstanding and exercisable at December 31, 2023 and 2022 was $0 and $4,021,834, respectively.

NOTE 15 – SHAREHOLDERS’ EQUITY

On February 17, 2021, we completed an offering of 6,210,000 shares of our common stock, inclusive of the underwriters full over allotment, at $10.00 per share for total gross offering proceeds of $62,100,000. In connection with this offering, we received approval to list our common stock on the Nasdaq Capital Market under the symbol "UGRO."

On May 24, 2021, we announced that the Board authorized a stock repurchase program to purchase up to $5,000,000 of the currently outstanding shares of the Company’s common stock, over a period of 12 months through open market purchases, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934. On January 18, 2022, the Board authorized a $2,000,000 increase to the stock repurchase program, to a total of $7,000,000. On February 2, 2022, the Board authorized an additional $1,500,000 increase to the stock repurchase, to a total of $8,500,000. On September 12, 2022, the Board authorized an additional $2,000,000 increase to the stock repurchase, for a total of $10,500,000. During the twelve months ended December 31, 2023 the Company did not repurchase shares of common stock. During the twelve months ended December 31, 2022, the Company repurchased 594,918 shares of common stock at an average price per share of $7.33, for a total price of $4,362,052. In total, the Company has repurchased 1,099,833 shares of common stock at an average price per share of $8.25 for a total of $9,073,622, under this program. As of December 31, 2023, we have $1,429,458 remaining under the repurchase program.

In February 2021, the Company repurchased 350,000 shares of common stock with an average price per share of $8.50, for a total of $3,000,000, outside of any stock repurchase or publicly announced program.

NOTE 16 – INCOME TAXES

The Company accounts for income taxes in accordance with the asset and liability method prescribed in ASC 740, "Accounting for Income Taxes." The Company has adopted the provisions of ASC 740-10-25, which provides recognition criteria and a related measurement model for uncertain tax positions taken or expected to be taken in income tax returns. ASC 740-10-25 requires that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not that the position would be sustained upon examination by tax authorities. Tax positions that meet the more likely than not threshold are then measured using a probability weighted approach recognizing the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company had no tax positions relating to open income tax returns that were considered to be uncertain.

The Company has experienced cumulative losses for both book and tax purposes since inception. The potential future recovery of any tax assets that the Company may be entitled to due to these accumulated losses is uncertain and any tax assets that that the Company may be entitled to have been fully reserved based on management’s current estimates. Management intends to continue maintaining a full valuation allowance on the Company’s deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. The deferred income tax benefit for the years ended December 31, 2023 and 2022 relate to the reduction in the deferred tax liability associated with the amortization of the intangible assets from the acquisitions of the DVO, Emerald and 2WR Entities.

Loss before income tax are as follows (in thousands):

	Year-ended December 31,
	2023		2022
Domestic	$	(23,999)	$	(13,862)
Foreign	$	(1,344)	$	(2,376)
Total	$	(25,343)	$	(16,238)

The income tax benefit for the years ended December 31, 2023 and 2022 are as follows (in thousands):

	Year-ended December 31,
	2023		2022
Current
Federal	$	—	$	—
State	$	(50)	$	(72)
Foreign	$	—	$	—
	$	(50)	$	(72)
Deferred
Federal	$	(44)	$	859
State	$	—	$	196
Foreign	$	—	$	—
	$	(44)	$	1,055
Total income tax benefit (expense)	$	(94)	$	983

A tax benefit in the period ending December 31, 2022 in the amount of $1,055,315 was recorded as a result of the release of part of the valuation allowance to offset deferred tax liabilities that were assumed as part of the business combination.

A reconciliation between the expected income tax provision at the federal statutory tax rate and the reported income tax provision for the periods ended are approximately as follows:

	Year-ended December 31,
	2023		2022
Statutory Federal income tax rate	21	%	21	%
State income taxes, net of federal benefit	3	%	2	%
Research and development tax credits	—	%	—	%
Change in valuation allowance	(18)	%	(14)	%
Change in Tax Rate	—	%	—	%
Permanent differences	(2)	%	(3)	%
Goodwill Impairment	(4.4)	%	—	%
Other	—	%	—	%
	—	%	6	%

The tax effects of significant items comprising the Company’s deferred taxes as of December 31, 2023 and 2022 are as follows (in thousands):

	December 31,
	2023		2022
Deferred tax assets:
Federal, state and foreign NOL carryover	$	9,532	$	5,618
Lease Liabilities	$	461	$	638
Bad Debts and Other Reserves	$	73	$	26
Fixed Assets	$	7
Investments	$	485	$	421
Share-based Compensation	$	—	$	—
Interest Expense	$	46	$	22
Other	$	194	$	89
Total deferred tax assets	$	10,798	$	6,814
Valuation Allowance	$	(9,786)	$	(5,114)
Net deferred tax assets	$	1,012	$	1,700
Deferred tax liabilities:
Goodwill	$	(66)	$	(9)
Intangible Assets	$	(539)	$	(1,010)
ROU Assets	$	(451)	$	(632)
Fixed Assets			$	(49)
Net deferred tax asset (liability)	$	(44)	$	—

At December 31, 2023, the Company had $34.2 million of Federal net operating loss which are set to expire beginning in 2037. The Internal Revenue Code contains provisions that may limit the net operating loss carryovers available to be used in any year if certain events occur, including significant changes in ownership interest.

Below is a table showing the gross net operating loss carryovers available at December 31, 2023 and their respective expiration:

	Amount		Expiry
Federal Net Operating Losses with expiration	$	1,945	2037
Federal Net Operating Losses with indefinite life	$	32,218	indefinite
Total Federal Net Operating Losses	$	34,163
Various State Net Operating Losses	$	29,080	2037-2043
Canada Net Operating Losses	$	1,997	2042
Netherlands Net Operating Losses	$	1,724	indefinite

Realization of operating loss carryforwards to offset future operating income for tax purposes are subject to various limitations including change of ownership and current year taxable income percentage limitations. The Company has no credit carryforwards for tax purposes.

The Company’s primary filing jurisdictions are the United States, Canada, and the Netherlands. Due to the Company’s net operating loss carryforwards, the Company’s income tax returns remain subject to examination by federal, foreign and most state taxing authorities for all tax years.

NOTE 17 – BUSINESS DEVELOPMENT

During 2021, the Company purchased lights from one of its international vendors to fulfill an order for a major customer. Subsequent to the sale, delivery and installation of the lights, the customer noted the lights were not performing as the manufacturer had stipulated. The Company performed tests of the lights and confirmed the performance metrics did not meet the manufacturer’s specifications. The Company worked with the customer to determine a lighting solution of replacement lights, sourced from the vendor, that would meet their needs. The customer has been a key customer to the Company and the Company expects to continue to do significant business with the customer in the future. In order to immediately satisfy the customer in this matter, the Company agreed to supply the replacement lighting solution to the customer at the Company’s expense while the Company continues to work with the vendor to resolve the original defective lighting issue, including, claims for reimbursement of the expense.

In total, the Company delivered $3.3 million of replacement lighting equipment to the customer and recorded the full amount as a business development expense during the year ended December 31, 2022.

NOTE 18 – WARRANTS

The following table shows warrant activity for the years ended December 31, 2023 and 2022:

	Number of shares	Weighted Average Exercise Price
Warrants outstanding as of December 31, 2021	395,483	$	11.65
Exercised	(18,196)	$	6.00
Terminated – cashless exercise	(40,137)	$	6.00
Expired	—	$	—
Warrants outstanding as of December 31, 2022	337,150	$	12.63
Warrants exercisable as of December 31, 2022	337,150	$	12.63

	Number of shares	Weighted Average Exercise Price
Warrants outstanding as of December 31, 2022	337,150	$	12.63
Exercised	—	$	—
Terminated	—	$	—
Issued for line of credit	175,531	$	1.25
Expired loan extension	(1,000)	$	6.00
Warrants outstanding as of December 31, 2023	511,681	$	8.74
Warrants exercisable as of December 31, 2023	337,150	$	12.63

The fair value of the warrants is calculated using the Black-Scholes pricing model based on the estimated market value of the underlying common stock at the valuation measurement date, the contractual term of the options, the risk-free interest rate at the date of grant and expected volatility of the price of the underlying common stock of 100%. There is a moderate degree of subjectivity

involved when estimating the value of warrants with the Black-Scholes option pricing model as the assumptions used are moderately judgmental.

The weighted-average life of the warrants is 4.04 years. The aggregate intrinsic value of the warrants outstanding and exercisable at December 31, 2023 is $31,009.

NOTE 19 – SEGMENTS

An operating segment is defined as a component of a reporting entity that engages in business activities from which it recognizes revenues and incurs expenses with discrete financial information available that is evaluated regularly by the Chief Operating Decision Maker ("CODM") of the operating segment. The CODM utilizes this financial information to decide how to allocate resources to, and in assessing performance of, the operating segment. Management evaluates segment performance primarily based on operating segment gross profit.

The Company has identified the following operating segments related to fiscal years 2023 and 2022:

•Equipment systems - Operating segment that acts as an experienced vendor providing value-added reselling to clients when selling vetted best-in-call commercial horticulture lighting solutions, rolling and automated container benching systems, specialty fans, fertigation/irrigation systems, environmental control systems, and microbial mitigation and odor reduction systems.

•Services - Operating segment that generates revenue by providing clients with design-build service offerings that include architectural, interior, and engineering design, construction management, as well as services for the operational stages of the facility. The Company's in-house architectural, interior design, engineering, construction and cultivation design services integrate design with pre-construction services and thereby reduce project schedule and capital investments.

•Construction design-build - Operating segment that engages as a general contractor to provide all the additional necessary parts to deliver clients' projects, from the initial estimate and bid process, to subcontractor selection, and management of all construction details.

In addition to the operating segments identified above, the Company recognizes other revenues and incurs costs at the corporate level where it develops and oversees the implementation of company-wide strategic initiatives and provides support to our operating segments by centralizing certain administrative functions. Corporate management is responsible for, among other things: evaluating and selecting the geographic markets in which we operate, consistent with our overall business strategy; making major personnel decisions related to employee compensation and benefits; and monitoring the financial and operational performance of the Company's operating segments. Corporate costs include general and administrative expenses related to operating our corporate headquarters.

The Company's operating segments follow the same accounting policies used for our consolidated financial statements as described in Note 1 – Summary of Significant Accounting Policies. The results of each operating segment are not necessarily indicative of the results that would have occurred had the operating segment been an independent, stand-alone entity during the periods presented, nor are they indicative of the results to be expected in future periods.

The following tables present financial information relating to our operating segments for the fiscal years ended December 31, 2023 and 2022:

	Year Ended December 31, 2023
	Equipment			Services			Construction			Corporate/ Other			Total
Revenues	$	12,720,873		$	11,919,920		$	44,561,782		$	717,473		$	69,920,048
Cost of revenues	11,081,532			7,222,964			41,194,900			517,986			60,017,382
Gross profit	$	1,639,341		$	4,696,956		$	3,366,882		$	199,487		$	9,902,666
Gross profit %	13		%	39		%	8		%	28		%	14		%
Intangible asset amortization	$	—		$	411,680		$	644,500		$	—		$	1,056,180
Business development	$	—		$	—		$	—		$	—		$	—
Income (Loss) before income taxes	$	(3,360,659)		$	(1,414,727)		$	(177,618)		$	(20,390,448)		$	(25,343,452)
Total assets	$	2,800,367		$	17,604,751		$	31,310,180		$	(2,202,231)		$	49,513,067
	Year Ended December 31, 2022
	Equipment			Services			Construction			Corporate/ Other			Total
Revenues	$	33,119,480		$	13,084,647		$	19,080,747		$	1,009,825		$	66,294,699
Cost of revenues	28,776,022			6,239,013			18,392,077			732,065			54,139,177
Gross profit	$	4,343,458		$	6,845,634		$	688,670		$	277,760		$	12,155,522
Gross profit %	13		%	52		%	4		%	28		%	18		%
Intangible asset amortization	$	10,547		$	500,451		$	548,781		$	—		$	1,059,779
Business development	$	3,299,864		$	—		$	—		$	—		$	3,299,864
Income (Loss) before income taxes	$	(3,966,953)		$	645,181		$	(1,960,111)		$	(10,956,108)		$	(16,237,991)
Total assets	$	12,338,461		$	21,023,989		$	20,819,338		$	6,112,699		$	60,294,487

NOTE 20 – QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

Effect of Restatement on Previously Issued Quarterly Financial Information

The Company is presenting herein restated unaudited condensed consolidated financial information for each of the previously reported quarters during the fiscal years ended December 31, 2023, and 2022 and for the year-to-date periods then ended. See Note 1A “Restatement of Previously Issued Consolidated Financial Statements,” for additional information on the restatement.

The following tables present the effect of the restatement on the Company's previously reported unaudited condensed Consolidated Balance Sheets as of March 31, 2023, June 30, 2023 and September 30, 2023 and unaudited condensed Consolidated Statements of Operations and Comprehensive Loss and condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023, the three and six months ended June 30, 2023 and the three and nine months ended September 30, 2023. The values as previously reported were derived from the previously filed Quarterly Reports on Form 10-Q for the quarters ended March 31, 2023, June 30, 2023, and September 30, 2023. The definitions of the amounts for each column are the same definitions stated in Note 1A.

	As of March 31, 2023						As of June 30, 2023						As of September 30, 2023
	As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated
Current assets:
Cash	$	7,327,485	$	(261,282)	$	7,066,203	$	8,559,181	$	(267,127)	$	8,292,054	$	4,770,430	$	(273,233)	$	4,497,197
Accounts receivable, net	22,069,269		(247,727)		21,821,542		15,475,146		(140,159)		15,334,987		18,341,489		(139,990)		18,201,499
Contract receivables	2,817,407		—		2,817,407		6,948,417		(271,105)		6,677,312		8,378,657		(1,562,217)		6,816,440
Prepaid expenses and other assets	4,685,529		(826,696)		3,858,833		3,540,554		(1,030,933)		2,509,621		3,268,279		(1,137,504)		2,130,775
Total current assets	36,899,690		(1,335,705)		35,563,985		34,523,298		(1,709,324)		32,813,974		34,758,855		(3,112,944)		31,645,911
Non-current assets:
Property and equipment, net	1,366,761		—		1,366,761		1,332,908		—		1,332,908		1,456,009		—		1,456,009
Operating lease right of use assets, net	2,542,644		—		2,542,644		2,396,668		—		2,396,668		2,217,738		—		2,217,738
Investments	2,572,103		—		2,572,103		2,584,964		—		2,584,964		—		—		—
Goodwill	15,572,050		(552,379)		15,019,671		15,572,050		(552,379)		15,019,671		15,572,050		(552,379)		15,019,671
Intangible assets, net	5,140,667		—		5,140,667		4,876,503		—		4,876,503		4,634,672		—		4,634,672
Total non-current assets	27,194,225		(552,379)		26,641,846		26,763,093		(552,379)		26,210,714		23,880,469		(552,379)		23,328,090
Total assets	$	64,093,915	$	(1,888,084)	$	62,205,831	$	61,286,391	$	(2,261,703)	$	59,024,688	$	58,639,324	$	(3,665,323)	$	54,974,001
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	14,865,846	$	(40,836)	$	14,825,010	$	18,552,579	$	(55,708)	$	18,496,871	$	22,194,304	$	(1,144,208)	$	21,050,096
Accrued expenses	5,215,255		1,884,456		7,099,711		5,183,451		1,606,895		6,790,346		4,074,098		1,641,446		5,715,544
Contract liabilities	2,413,423		752,769		3,166,192		3,344,832		938,193		4,283,025		1,981,728		994,473		2,976,201
Customer deposits	2,355,609		—		2,355,609		1,940,394		—		1,940,394		969,888		—		969,888
Contingent consideration	2,537,291		—		2,537,291		238,621		—		238,621		161,947		—		161,947
Notes payable	2,908,213		—		2,908,213		1,941,188		—		1,941,188		1,964,775		—		1,964,775
Operating lease liabilities	606,648		—		606,648		617,815		—		617,815		598,447		—		598,447
Total current liabilities	30,902,285		2,596,389		33,498,674		31,818,880		2,489,380		34,308,260		31,945,187		1,491,711		33,436,898
Non-current liabilities:
Operating lease liabilities, net of current portion	1,964,804		—		1,964,804		1,822,754		—		1,822,754		1,666,138		—		1,666,138
Deferred tax liability	968,151		(968,151)		—		914,185		(914,185)		—		865,802		(865,802)		—
Total non-current liabilities	2,932,955		(968,151)		1,964,804		2,736,939		(914,185)		1,822,754		2,531,940		(865,802)		1,666,138

Total liabilities	$	33,835,240	$	1,628,238	$	35,463,478	$	34,555,819	$	1,575,195	$	36,131,014	$	34,477,127	$	625,909	$	35,103,036
Commitments and contingencies (note 10)
Stockholders’ equity
Preferred stock	—		—		—		—		—		—		—		—		—
Common stock	12,388		64		12,452		13,056		—		13,056		13,120		—		13,120
Additional paid-in capital	85,554,375		(693,010)		84,861,365		87,468,937		(692,946)		86,775,991		88,268,286		(692,946)		87,575,340
Treasury shares	(12,045,542)		—		(12,045,542)		(12,045,542)		—		(12,045,542)		(12,045,542)		—		(12,045,542)
Accumulated deficit	(43,262,546)		(2,823,376)		(46,085,922)		(48,705,879)		(3,143,952)		(51,849,831)		(52,073,667)		(3,598,286)		(55,671,953)
Total stockholders’ equity	30,258,675		(3,516,322)		26,742,353		26,730,572		(3,836,898)		22,893,674		24,162,197		(4,291,232)		19,870,965
Total liabilities and stockholders’ equity	$	64,093,915	$	(1,888,084)	$	62,205,831	$	61,286,391	$	(2,261,703)	$	59,024,688	$	58,639,324	$	(3,665,323)	$	54,974,001

	Three months ended March 31, 2023						Three months ended June 30, 2023						Three months ended September 30, 2023
	As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated
Revenues:
Equipment systems	$	2,911,823	$	(6,788)	$	2,905,035	$	4,619,888	$	68,646	$	4,688,534	$	3,043,656	$	(7,898)	$	3,035,758
Services	3,470,653		—		3,470,653		3,034,574		(4,000)		3,030,574		2,898,741		—		2,898,741
Construction design-build	10,205,952		(10,614)		10,195,338		11,048,997		(456,528)		10,592,469		14,813,486		(1,347,393)		13,466,093
Other	176,957		6,788		183,745		134,086		5,813		139,899		178,439		7,898		186,337
Total revenues	16,765,385		(10,614)		16,754,771		18,837,545		(386,069)		18,451,476		20,934,322		(1,347,393)		19,586,929
Cost of revenues:
Equipment systems	2,477,505		(69,024)		2,408,481		4,044,082		95,212		4,139,294		2,766,117		8,030		2,774,147
Services	1,997,423		(22,885)		1,974,538		1,949,959		—		1,949,959		1,768,166		—		1,768,166
Construction design-build	9,315,993		(86,020)		9,229,973		9,876,622		(121,382)		9,755,240		13,413,066		(929,094)		12,483,972
Other	132,616		526		133,142		92,248		2,557		94,805		130,257		7,102		137,359
Total cost of revenues	13,923,537		(177,403)		13,746,134		15,962,911		(23,613)		15,939,298		18,077,606		(913,962)		17,163,644
Gross profit	2,841,848		166,789		3,008,637		2,874,634		(362,456)		2,512,178		2,856,716		(433,431)		2,423,285
Operating expenses:
General and administrative	7,484,450		200,580		7,685,030		6,336,894		(101,688)		6,235,206		5,592,354		(33,587)		5,558,767
Depreciation and amortization	404,069		—		404,069		424,163		—		424,163		372,969		—		372,969
Business development	—		—		—				—		—		—		—		—
Total operating expenses	7,888,519		200,580		8,089,099		6,761,057		(101,688)		6,659,369		5,965,323		(33,587)		5,931,736
Loss from operations	(5,046,671)		(33,791)		(5,080,462)		(3,886,423)		(260,768)		(4,147,191)		(3,108,607)		(399,844)		(3,508,451)
Non-operating income (expense):
Interest expense	(73,216)		—		(73,216)		(44,989)		—		(44,989)		(39,929)		—		(39,929)
Interest income	73,131		—		73,131		75,060		—		75,060		19,461		—		19,461
Write-down of investment	—		—		—				—		—		(258,492)		—		(258,492)
Contingent consideration	(160,232)		—		(160,232)		—		—		—				—		—
Loss on settlement	—		—		—		(1,500,000)		—		(1,500,000)		—		—		—
Other income (expense)	(2,793)		(7,629)		(10,422)		(140,946)		(5,843)		(146,789)		(28,605)		(6,106)		(34,711)
Total non-operating income (expense)	(163,110)		(7,629)		(170,739)		(1,610,875)		(5,843)		(1,616,718)		(307,565)		(6,106)		(313,671)
Loss before income taxes	(5,209,781)		(41,420)		(5,251,201)		(5,497,298)		(266,611)		(5,763,909)		(3,416,172)		(405,950)		(3,822,122)
Income tax benefit	65,132		(65,132)		—		53,965		(53,965)		—		48,384		(48,384)		—
Net loss	$	(5,144,649)	$	(106,552)	$	(5,251,201)	$	(5,443,333)	$	(320,576)	$	(5,763,909)	$	(3,367,788)	$	(454,334)	$	(3,822,122)
Comprehensive loss	$	(5,144,649)	$	(106,552)	$	(5,251,201)	$	(5,443,333)	$	(320,576)	$	(5,763,909)	$	(3,367,788)	$	(454,334)	$	(3,822,122)
Loss per share - basic and diluted	$	(0.48)	$	(0.01)	$	(0.49)	$	(0.50)	$	(0.03)	$	(0.53)	$	(0.29)	$	(0.04)	$	(0.33)
Weighted average shares - basic and diluted	10,772,705		10,772,705		10,772,705		10,945,978		10,945,978		10,945,978		11,649,790		11,649,790		11,649,790

	Six months ended June 30, 2023						Nine months ended September 30, 2023
	As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated
Revenues:
Equipment systems	$	7,531,711	$	61,858	$	7,593,569	$	10,575,367	$	53,960	$	10,629,327
Services	6,505,227		(4,000)		6,501,227		9,403,968		(4,000)		9,399,968
Construction design-build	21,254,949		(467,142)		20,787,807		36,068,435		(1,814,535)		34,253,900
Other	311,043		12,601		323,644		489,482		20,499		509,981
Total revenues	35,602,930		(396,683)		35,206,247		56,537,252		(1,744,076)		54,793,176
Cost of revenues:
Equipment systems	6,521,587		26,188		6,547,775		9,287,704		34,218		9,321,922
Services	3,947,382		(22,885)		3,924,497		5,715,548		(22,885)		5,692,663
Construction design-build	19,192,615		(207,402)		18,985,213		32,605,681		(1,136,496)		31,469,185
Other	224,864		3,083		227,947		355,121		10,185		365,306
Total cost of revenues	29,886,448		(201,016)		29,685,432		47,964,054		(1,114,978)		46,849,076
Gross profit	5,716,482		(195,667)		5,520,815		8,573,198		(629,098)		7,944,100
Operating expenses:
General and administrative	13,821,344		98,892		13,920,236		19,413,698		65,305		19,479,003
Depreciation and Amortization	828,232		—		828,232		1,201,201		—		1,201,201
Business development	—		—		—		—		—		—
Total operating expenses	14,649,576		98,892		14,748,468		20,614,899		65,305		20,680,204
Loss from operations	(8,933,094)		(294,559)		(9,227,653)		(12,041,701)		(694,403)		(12,736,104)
Non-operating income (expense):
Interest expense	(118,205)		—		(118,205)		(158,134)		—		(158,134)
Interest income	148,191		—		148,191		167,652		—		167,652
Write-down of investment	—		—		—		(258,492)		—		(258,492)
Contingent consideration	(160,232)		—		(160,232)		(160,232)		—		(160,232)
Loss on settlement	(1,500,000)		—		(1,500,000)		(1,500,000)		—		(1,500,000)
Other income (expense)	(143,739)		(13,472)		(157,211)		(172,344)		(19,578)		(191,922)
Total non-operating income (expense)	(1,773,985)		(13,472)		(1,787,457)		(2,081,550)		(19,578)		(2,101,128)
Loss before income taxes	(10,707,079)		(308,031)		(11,015,110)		(14,123,251)		(713,981)		(14,837,232)
Income tax benefit	119,097		(119,097)		—		167,481		(167,481)		—
Net loss	$	(10,587,982)	$	(427,128)	$	(11,015,110)	$	(13,955,770)	$	(881,462)	$	(14,837,232)
Comprehensive loss	$	(10,587,982)	$	(427,128)	$	(11,015,110)	$	(13,955,770)	$	(881,462)	$	(14,837,232)
Loss per share - basic and diluted	$	(0.97)	$	(0.04)	$	(1.01)	$	(1.29)	$	(0.08)	$	(1.37)
Weighted average shares - basic and diluted	10,859,820		10,859,820		10,859,820		10,859,820		10,859,820		10,859,820

	Common Stock			Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, March 31, 2023, as originally stated	12,388,389	$	12,388	$	85,554,375	$	(43,262,546)	$	(12,045,542)	$	30,258,675
Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price				(692,946)						(692,946)
Issuance of contingent consideration shares originally incorrectly recorded in Q2 2023	64,224	64		(64)						—
Various income statement adjustments on or prior to March 31, 2023						(2,823,376)				(2,823,376)
Balance, March 31, 2023, as restated	12,452,613	$	12,452	$	84,861,365	$	(46,085,922)	$	(12,045,542)	$	26,742,353
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, June 30, 2023, as originally stated	13,056,409	$	13,056	$	87,468,937	$	(48,705,879)	$	(12,045,542)	$	26,730,572
Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price				(692,946)						(692,946)
Various income statement adjustments on or prior to June 30, 2023						(3,143,952)				(3,143,952)
Balance, June 30, 2023, as restated	13,056,409	$	13,056	$	86,775,991	$	(51,849,831)	$	(12,045,542)	$	22,893,674
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, September 30, 2023, as originally stated	13,120,413	$	13,120	$	88,268,286	$	(52,073,667)	$	(12,045,542)	$	24,162,197
Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price				(692,946)						(692,946)
Various income statement adjustments on or prior to September 30, 2023						(3,598,286)				(3,598,286)
Balance, September 30, 2023, as restated	13,120,413	$	13,120	$	87,575,340	$	(55,671,953)	$	(12,045,542)	$	19,870,965

	Three months ended March 31, 2023						Six months ended June 30, 2023						Nine months ended September 30, 2023
	As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated
Cash flows from operating activities:
Net loss	$	(5,144,649)	$	(106,552)	$	(5,251,201)	$	(10,587,982)	$	(427,128)	$	(11,015,110)	$	(13,955,770)	$	(881,462)	$	(14,837,232)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	404,069		—		404,069		828,232		—		828,232		1,201,201		—		1,201,201
Amortization of right-of-use assets	—		87,426		87,426		—		168,250		168,250		—		323,002		323,002
Stock-based compensation expense	479,641		—		479,641		1,102,188		—		1,102,188		1,824,835		160,848		1,985,683
Impairment of investment	—		—		—		—		—		—		258,492		—		258,492
Loss on settlement	—		—		—		1,500,000		—		1,500,000		—		1,500,000		1,500,000
Change in fair value of contingent consideration	160,232		—		160,232		160,232		—		160,232		160,232		—		160,232
Interest income on investments	327,191		(339,983)		(12,792)		472,277		(497,931)		(25,654)		561,518		(586,404)		(24,886)

Changes in operating assets and liabilities (net of acquired amounts):
Accounts receivable and contract receivables	(6,827,927)		325,823		(6,502,104)		(4,424,814)		549,363		(3,875,451)		(8,782,141)		1,901,050		(6,881,091)
Prepaid expenses and other assets and property and equipment	(334,525)		(76,656)		(411,181)		1,030,205		(92,170)		938,035		1,498,518		(182,408)		1,316,110
Accounts payable, contract liabilities, customer deposits, and accrued expenses	6,902,726		848,871		7,751,597		10,659,177		(343,472)		10,315,705		12,325,944		(2,290,639)		10,035,305
Change in contingent consideration from indemnification	(174,592)		174,592		—		(917,699)		(318,597)		(1,236,296)		(917,699)		—		(917,699)
Operating lease liability	—		(57,635)		(57,635)		(360,787)		210,521		(150,266)		(529,746)		231,341		(298,405)
Deferred tax liability	(65,132)		65,132		—		(119,097)		119,097		—		(167,481)		167,481		—
Customer deposits	—		—		—		—		—		—		—		—		—
Net cash used in operating activities	(4,272,966)		921,018		(3,351,948)		(658,068)		(632,067)		(1,290,135)		(6,522,097)		342,809		(6,179,288)
Cash flows from investing activities:
Proceeds from sale of investment	—		—		—		—		—		—		2,326,472		(4)		2,326,468
Purchases of property and equipment	(133,833)		(4,177)		(138,010)		(226,700)		799		(225,901)		(456,484)		35,502		(420,982)
Net cash provided by (used in) investing activities	(133,833)		(4,177)		(138,010)		(226,700)		799		(225,901)		1,869,988		35,498		1,905,486
Cash flows from financing activities:
Additions to notes payable	—		—		—		—		—		—		518,400		(518,400)		—
Repayment of finance lease liability	(43,410)		—		(43,410)		(88,299)		33,536		(54,763)		(133,388)		15,802		(117,586)
Payments to settle contingent consideration	(230,309)		—		(230,309)		(479,457)		479,457		—		(479,365)		(92)		(479,457)
Repayment of notes payable	—		(924,469)		(924,469)		(1,996,298)		104,802		(1,891,496)		(2,491,111)		104,804		(2,386,307)
Net cash used in financing activities	(273,719)		(924,469)		(1,198,188)		(2,564,054)		617,795		(1,946,259)		(2,585,464)		(397,886)		(2,983,350)
Net change in cash	(4,680,518)		(7,628)		(4,688,146)		(3,448,822)		(13,473)		(3,462,295)		(7,237,573)		(19,579)		(7,257,152)
Cash at beginning of period	12,008,003		(253,654)		11,754,349		12,008,003		(253,654)		11,754,349		12,008,003		(253,654)		11,754,349
Cash at end of period	$	7,327,485	$	(261,282)	$	7,066,203	$	8,559,181	$	(267,127)	$	8,292,054	$	4,770,430	$	(273,233)	$	4,497,197
Non Cash Investing and Financing Activities
Stock issued for contingent consideration	—		191,854		191,854		—		191,854		191,854		—		1,400,511		1,400,511

Operating lease right-of-use asset and liability measurement	—	—	—	—	—	—	—	11,315	11,315
Prepaid assets financed by notes payable	—	—	—	—	—	—	—	518,400	518,400
Financing lease right-of-use asset and liability measurement	—	26,899	26,899	—	—	—	—	23,664	23,664

The following tables present the effect of the restatement on the Company's previously reported unaudited condensed Consolidated Balance Sheets as of March 31, 2022, June 30, 2022 and September 30, 2022 and unaudited condensed Consolidated Statements of Comprehensive Income and condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2022, the three and six months ended June 30, 2022 and the three and nine months ended September 30, 2022. The values as previously reported were derived from the previously filed Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022, June 30, 2022, and September 30, 2022. The definitions of the amounts for each column are the same definitions stated in Note 1A.

	As of March 31, 2022						As of June 30, 2022						As of September 30, 2022
	As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated
Current assets:
Cash	$	27,052,203	$	(235,481)	$	26,816,722	$	22,767,595	$	(237,012)	$	22,530,583	$	18,605,182	$	(246,012)	$	18,359,170
Accounts receivable, net	13,467,120		—		13,467,120		14,903,543		—		14,903,543		12,234,400		—		12,234,400
Contract receivables	—		—		—		543,687		—		543,687		1,270,902		—		1,270,902
Inventories	354,320		—		354,320		398,098		—		398,098		310,996		—		310,996
Prepaid expenses and other assets	10,081,436		(362,695)		9,718,741		6,142,613		(363,807)		5,778,806		4,852,262		(570,515)		4,281,747
Total current assets	50,955,079		(598,176)		50,356,903		44,755,536		(600,819)		44,154,717		37,273,742		(816,527)		36,457,215
Non-current assets:
Property and equipment, net	207,638		—		207,638		864,022		—		864,022		830,406		—		830,406
Operating lease right of use assets, net	693,524		—		693,524		708,876		—		708,876		1,193,161		—		1,193,161
Investments	4,210,358		(1,710,358)		2,500,000		4,210,358		(1,710,358)		2,500,000		2,546,574		—		2,546,574
Goodwill	7,992,121		(254,100)		7,738,021		10,636,284		797,894		11,434,178		12,127,124		(692,946)		11,434,178
Intangible assets, net	1,412,965		—		1,412,965		4,886,740		—		4,886,740		4,461,403		—		4,461,403
Total non-current assets	14,516,606		(1,964,458)		12,552,148		21,306,280		(912,464)		20,393,816		21,158,668		(692,946)		20,465,722
Total assets	$	65,471,685	$	(2,562,634)	$	62,909,051	$	66,061,816	$	(1,513,283)	$	64,548,533	$	58,432,410	$	(1,509,473)	$	56,922,937
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	7,930,985	$	21,010	$	7,951,995	$	7,946,023	$	20,136	$	7,966,159	$	6,508,946	$	20,176	$	6,529,122
Accrued expenses	3,106,790		1,146,799		4,253,589		3,381,263		1,152,458		4,533,721		5,747,624		1,573,762		7,321,386
Contract liabilities			—		—		671,685		—		671,685		2,026,161		—		2,026,161
Customer deposits	7,234,914		—		7,234,914		3,286,073		—		3,286,073		1,929,829		—		1,929,829
Contingent consideration	1,563,000		—		1,563,000		2,612,678		—		2,612,678		2,400,771		—		2,400,771
Notes Payable	—		—		—		—		—		—		—		—		—
Operating lease liabilities	219,836		—		219,836		283,727		—		283,727		354,403		—		354,403
Total current liabilities	20,055,525		1,167,809		21,223,334		18,181,449		1,172,594		19,354,043		18,967,734		1,593,938		20,561,672
Non-current liabilities:

Operating lease liabilities, net of current portion	474,862		—		474,862		427,826		—		427,826		1,097,208		(440,625)		656,583
Deferred tax liability	332,565		(332,565)		—		1,201,112		(1,201,112)		—		863,325		(863,325)		—
Total non-current liabilities	807,427		(332,565)		474,862		1,628,938		(1,201,112)		427,826		1,960,533		(1,303,950)		656,583
Total liabilities	$	20,862,952	$	835,244	$	21,698,196	$	19,810,387	$	(28,518)	$	19,781,869	$	20,928,267	$	289,988	$	21,218,255
Commitments and contingencies (note 10)
Stockholders’ equity
Preferred stock	—		—		—				—		—		—		—		—
Common stock	11,628		—		11,628		11,911		—		11,911		11,949		—		11,949
Additional paid-in capital	79,589,977		(254,100)		79,335,877		82,971,694		797,894		83,769,588		83,068,423		(692,946)		82,375,477
Treasury shares	(11,456,667)		—		(11,456,667)		(11,456,667)		—		(11,456,667)		(11,639,937)		—		(11,639,937)
Accumulated deficit	(23,536,205)		(3,143,778)		(26,679,983)		(25,275,509)		(2,282,659)		(27,558,168)		(33,936,292)		(1,106,515)		(35,042,807)
Total stockholders’ equity	44,608,733		(3,397,878)		41,210,855		46,251,429		(1,484,765)		44,766,664		37,504,143		(1,799,461)		35,704,682
Total liabilities and stockholders’ equity	$	65,471,685	$	(2,562,634)	$	62,909,051	$	66,061,816	$	(1,513,283)	$	64,548,533	$	58,432,410	$	(1,509,473)	$	56,922,937

	Three months ended March 31, 2022						Three months ended June 30, 2022						Three months ended September 30, 2022
	As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated
Revenues:
Equipment systems	$	17,067,344	$	—	$	17,067,344	$	10,077,572	$	1,315	$	10,078,887	$	3,879,271	$	1,161	$	3,880,432
Services	3,638,507		—		3,638,507		3,027,555		—		3,027,555		2,839,334		—		2,839,334
Construction design-build	—		—		—		2,917,321		—		2,917,321		5,384,267		—		5,384,267
Other	347,018		—		347,018		259,054		(1,315)		257,739		265,416		(1,161)		264,255
Total revenues	21,052,869		—		21,052,869		16,281,502		—		16,281,502		12,368,288		—		12,368,288
Cost of revenues:
Equipment systems	13,974,779		612,496		14,587,275		8,945,763		(266,618)		8,679,145		3,212,286		104,684		3,316,970
Services	1,929,248		(327,819)		1,601,429		951,672		319,993		1,271,665		1,796,967		7,958		1,804,925
Construction design-build	—		—		—		2,692,700		—		2,692,700		4,570,506		—		4,570,506
Other	246,822		—		246,822		189,421		—		189,421		195,938		—		195,938
Total cost of revenues	16,150,849		284,677		16,435,526		12,779,556		53,375		12,832,931		9,775,697		112,642		9,888,339
Gross profit	4,902,020		(284,677)		4,617,343		3,501,946		(53,375)		3,448,571		2,592,591		(112,642)		2,479,949
Operating expenses:
General and administrative	5,551,523		(15,315)		5,536,208		5,057,324		(50,884)		5,006,440		5,666,904		306,674		5,973,578
Depreciation and amortization	218,278		—		218,278		371,557		—		371,557		526,750		—		526,750
Business development	—		—		—		—		—		—		3,299,864		—		3,299,864
Total operating expenses	5,769,801		(15,315)		5,754,486		5,428,881		(50,884)		5,377,997		9,493,518		306,674		9,800,192
Loss from operations	(867,781)		(269,362)		(1,137,143)		(1,926,935)		(2,491)		(1,929,426)		(6,900,927)		(419,316)		(7,320,243)
Non-operating income (expense):
Interest expense	(7,658)		—		(7,658)		(7,659)		130		(7,529)		(6,953)		(130)		(7,083)
Interest income	79,852		—		79,852		47,274		—		47,274		94,203		—		94,203
Write-down of investment	—		—		—		—		—		—		(1,710,358)		1,710,358		—
Contingent consideration	—		—		—		—		—		—		—		—		—
Loss on settlement	—		—		—		—		—		—		—		—		—
Other income (expense)	(8,690)		(26,299)		(34,989)		71,564		(5,067)		66,497		(210,402)		(11,144)		(221,546)
Total non-operating income (expense)	63,504		(26,299)		37,205		111,179		(4,937)		106,242		(1,833,510)		1,699,084		(134,426)
Loss before income taxes	(804,277)		(295,661)		(1,099,938)		(1,815,756)		(7,428)		(1,823,184)		(8,734,437)		1,279,768		(7,454,669)
Income tax benefit	108,060		(108,060)		—		76,452		868,547		944,999		73,654		(103,624)		(29,970)
Net loss	(696,217)		(403,721)		(1,099,938)		(1,739,304)		861,119		(878,185)		(8,660,783)		1,176,144		(7,484,639)
Comprehensive loss	$	(696,217)	$	(403,721)	$	(1,099,938)	$	(1,739,304)	$	861,119	$	(878,185)	$	(8,660,783)	$	1,176,144	$	(7,484,639)
Loss per share - basic and diluted	$	(0.07)	$	(0.04)	$	(0.10)	$	(0.17)	$	0.08	$	(0.08)	$	(0.81)	$	0.11	$	(0.70)
Weighted average shares - basic and diluted	10,508,972		10,508,972		10,508,972		10,508,972		10,508,972		10,508,972		10,674,796		10,674,796		10,674,796

	Six months ended June 30, 2022						Nine months ended September 30, 2022
	As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated
Revenues:
Equipment systems	$	27,144,916	$	1,315	$	27,146,231	$	31,024,187	$	2,476	$	31,026,663
Services	6,666,062		—		6,666,062		9,505,396		—		9,505,396
Construction design-build	2,917,321		—		2,917,321		8,301,588		—		8,301,588
Other	606,072		(1,315)		604,757		871,488		(2,476)		869,012
Total revenues	37,334,371		—		37,334,371		49,702,659		—		49,702,659
Cost of revenues:
Equipment systems	22,920,542		345,878		23,266,420		26,132,828		450,562		26,583,390
Services	2,880,920		(7,826)		2,873,094		4,677,887		132		4,678,019
Construction design-build	2,692,700		—		2,692,700		7,263,206		—		7,263,206
Other	436,243		—		436,243		632,181		—		632,181
Total cost of revenues	28,930,405		338,052		29,268,457		38,706,102		450,694		39,156,796
Gross profit	8,403,966		(338,052)		8,065,914		10,996,557		(450,694)		10,545,863
Operating expenses:
General and administrative	10,608,847		(66,199)		10,542,648		16,275,751		240,475		16,516,226
Depreciation and Amortization	589,835		—		589,835		1,116,585		—		1,116,585
Business development	—		—		—		3,299,864		—		3,299,864
Total operating expenses	11,198,682		(66,199)		11,132,483		20,692,200		240,475		20,932,675
Loss from operations	(2,794,716)		(271,853)		(3,066,569)		(9,695,643)		(691,169)		(10,386,812)
Non-operating income (expense):
Interest expense	(15,317)		130		(15,187)		(22,270)		—		(22,270)
Interest income	127,126		—		127,126		221,329		—		221,329
Write-down of investment	—		—		—		(1,710,358)		1,710,358		—
Contingent consideration	—		—		—		—		—		—
Loss on settlement	—		—		—		—		—		—
Other income (expense)	62,874		(31,366)		31,508		(147,528)		(42,510)		(190,038)
Total non-operating income (expense)	174,683		(31,236)		143,447		(1,658,827)		1,667,848		9,021
Loss before income taxes	(2,620,033)		(303,089)		(2,923,122)		(11,354,470)		976,679		(10,377,791)
Income tax benefit	184,512		760,487		944,999		258,166		656,863		915,029
Net loss	$	(2,435,521)	$	457,398	$	(1,978,123)	$	(11,096,304)	$	1,633,542	$	(9,462,762)
Comprehensive loss	$	(2,435,521)	$	457,398	$	(1,978,123)	$	(11,096,304)	$	1,633,542	$	(9,462,762)
Loss per share - basic and diluted	$	(0.23)	$	0.04	$	(0.19)	$	(1.05)	$	0.15	$	(0.89)
Weighted average shares - basic and diluted	10,527,975		10,527,975		10,527,975		10,577,453		10,577,453		10,577,453

	Common Stock			Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, March 31, 2022, as originally stated	11,627,528	$	11,628	$	79,589,977	$	(23,536,205)	$	(11,456,667)	$	44,608,733
Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price				(254,100)						(254,100)
Various income statement adjustments on or prior to March 31, 2022						(3,143,778)				(3,143,778)
Balance, March 31, 2022, as restated	11,627,528	$	11,628	$	79,335,877	$	(26,679,983)	$	(11,456,667)	$	41,210,855
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, June 30, 2022, as originally stated	11,911,043	$	11,911	$	82,971,694	$	(25,275,509)	$	(11,456,667)	$	46,251,429
Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price				(692,946)						(692,946)
Adjustments to goodwill due to inaccurate goodwill calculation in initial Emerald purchase price accounting				1,490,840
Various income statement adjustments on or prior to June 30, 2022						(2,282,659)				(2,282,659)
Balance, June 30, 2022, as restated	11,911,043	$	11,911	$	83,769,588	$	(27,558,168)	$	(11,456,667)	$	44,766,664
	Common Stock			Additional Paid in Capital		Accumulated Deficit		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, September 30, 2022, as originally stated	11,948,718	$	11,949	$	83,068,423	$	(33,936,292)	$	(11,639,937)	$	37,504,143
Adjustments to goodwill due to using incorrect share price at acquisition date for equity portion of acquisition price				(692,946)						(692,946)
Various income statement adjustments on or prior to September 30, 2022						(1,106,515)				(1,106,515)
Balance, September 30, 2022, as restated	11,948,718	$	11,949	$	82,375,477	$	(35,042,807)	$	(11,639,937)	$	35,704,682

	Three months ended March 31, 2022						Six months ended June 30, 2022						Nine months ended September 30, 2022
	As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated		As Reported		Restatement Adjustments		As Restated
Cash flows from operating activities:
Net loss	$	(696,217)	$	(403,721)	$	(1,099,938)	$	(2,435,521)	$	457,398	$	(1,978,123)	$	(11,096,304)	$	1,633,542	$	(9,462,762)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	218,278		—		218,278		589,835		—		589,835		1,116,585		—		1,116,585
Amortization of right-of-use assets	—		(27,405)		(27,405)		—		19,305		19,305		—		177,037		177,037
Stock-based compensation expense	882,000		(32,209)		849,791		1,764,000		438,829		2,202,829		1,860,767		—		1,860,767
Impairment of investment	—		—		—		—		—		—		1,710,358		(1,710,358)		—
Interest income on investments	(56,921)		56,921		—		(54,942)		54,942		—		(42,373)		(4,200)		(46,573)
Fair value adjustments to purchase price allocation	—		—		—		—		1,047,768		1,047,768		—		—		—
Changes in operating assets and liabilities (net of acquired amounts):

Accounts receivable and contract receivables	(354,181)		(1,493,933)		(1,848,114)		663,955		(1,330,912)		(666,957)		2,222,194		(947,223)		1,274,971
Prepaid expenses and other assets and property and equipment	1,439,679		(176,842)		1,262,837		6,275,334		(1,078,252)		5,197,082		7,150,147		(575,370)		6,574,777
Accounts payable, contract liabilities, customer deposits, and accrued expenses	(5,017,936)		1,866,516		(3,151,420)		(11,379,532)		1,812,568		(9,566,964)		(11,512,764)		3,294,646		(8,218,118)
Operating lease liability	(33,913)		69,570		35,657		(163,054)		101,711		(61,343)		(139,251)		(70,505)		(209,756)
Deferred tax liability	(108,060)		108,060		—		(184,512)		(730,238)		(914,750)		(258,166)		(656,864)		(915,030)
Customer deposits	—		—		—		—		—		—		—		—		—
Net cash used in operating activities	(3,727,271)		(33,043)		(3,760,314)		(4,924,437)		793,119		(4,131,318)		(8,988,807)		1,140,705		(7,848,102)
Cash flows from investing activities:
Business combinations, net of cash acquired	—		—		—		(2,709,148)		(1)		(2,709,149)		(2,709,148)		(1)		(2,709,149)
Proceeds from investments	(36,000)		68,210		32,210		—		—		—		—		—		—
Purchases of property and equipment	(32,336)		2		(32,334)		(374,630)		52,322		(322,308)		(252,902)		(95,031)		(347,933)
Net cash provided by (used in) investing activities	(68,336)		68,212		(124)		(3,083,778)		52,321		(3,031,457)		(2,962,050)		(95,032)		(3,057,082)
Cash flows from financing activities:
Proceeds from issuance of common stock	28,797		(1)		28,796		28,797		—		28,797		28,796		1		28,797
Repurchase of common stock	(3,773,177)		—		(3,773,177)		(3,773,177)		—		(3,773,177)		(3,956,447)		—		(3,956,447)
Repayment of finance lease liability	—		(35,418)		(35,418)		(72,000)		(61,360)		(133,360)		(108,500)		(54,458)		(162,958)
Net cash used in financing activities	(3,744,380)		(35,419)		(3,779,799)		(3,816,380)		(847,221)		(4,663,601)		(4,036,151)		(1,056,454)		(5,092,605)
Net change in cash	(7,539,987)		(250)		(7,540,237)		(11,824,595)		(1,781)		(11,826,376)		(15,987,008)		(10,781)		(15,997,789)
Cash at beginning of period	34,592,190		(235,231)		34,356,959		34,592,190		(235,231)		34,356,959		34,592,190		(235,231)		34,356,959
Cash at end of period	$	27,052,203	$	(235,481)	$	26,816,722	$	22,767,595	$	(237,012)	$	22,530,583	$	18,605,182	$	(246,012)	$	18,359,170
Non Cash Investing and Financing Activities
Common stock and debt issued in acquisitions	—		—		—		—		11,662,570		11,662,570		—		11,662,570		11,662,570

Operating lease right-of-use asset and liability measurement	—	—	—	—	59,788	59,788	—	—	—
Financing lease right-of-use asset and liability measurement	—	—	—	—	69,600	69,600	—	69,600	69,600

NOTE 21 – SUBSEQUENT EVENTS

Term Loan

On October 1, 2024, urban-gro, Inc. (the “Company”) entered into an asset based term Loan Agreement (the “Loan”) with Grow Hill, LLC, a Washington limited liability company (the “Lender”) pursuant to which the Lender extended to the Company a secured loan of $2,100,000, to be used to assist the Company with cash management, including to support the Company’s growth in the cannabis industry. The Loan is for a term of 24 months and has an origination fee of $100,000, which was added to the amount of the Loan. There is no penalty to prepayment, except the Lender will receive at least $150,000 in minimum interest if Company chooses to prepay the Loan. The Loan contains standard events of default and representations and warranties by the Company and the Lender.

The Loan is evidenced by a Secured Promissory Note issued by the Company to the Lender (the “Grow Hill Promissory Note”). The Lender received a security interest in certain of the Company’s assets pursuant to a security agreement between the Company and the Lender (the “Security Agreement”), which does not include any assets of the Company’s subsidiaries, including those securing the Company’s existing line of credit. The Grow Hill Promissory Note accrues simple interest at an annual rate of fifteen percent (15%).

In connection with entering in the Loan, the Company issued to Lender a warrant (the “Warrant”) to purchase up to an aggregate of 160,000 shares of the Company’s common stock at an exercise price of $2.50 per share. The Warrant is exercisable immediately, will expire on the five (5) year anniversary of issuance, and is exercisable on a cashless basis at the election of the holder.

Modification of Agreement with Bancroft Related to Line of Credit

On October 2, 2024, the Company amended its agreement with the Placement Agent to modify the terms of the cash and warrant compensation associated with the Line of Credit. Under this amendment, the threshold at which the second tranche of cash and warrant compensation was increased such that under the new agreement the Company has to draw more than $6,000,000 from the Line of Credit in order for the Placement Agent to earn an additional cash fee of $200,000 and an additional $200,000 worth of Placement Agent's Warrants to purchase the Company's common stock at a price per share equal to 110% of the daily volume weighted average closing price of the Company’s common stock on the Nasdaq exchange for a period consisting of ten (10) consecutive trading days ending on and inclusive of the trading day of the date that the draws exceeding $6,000,000 were to take place.

Increase in Shares Available to be Issued Under 2021 Omnibus Plan

In the Company's Annual Meeting on June 19, 2024 the Company’s shareholders approved an amendment to the Company's Omnibus 2021 Stock Incentive Plan ("the Plan") to increase the aggregate number of shares available for issuance under the Plan by 1,200,000 shares. All other descriptors of the Plan in Note 14 remain unchanged.

Equity Issuances After December 31, 2023

Subsequent to the year ended December 31, 2023, 1,251,051 RSUs were granted to employees, directors, and consultants with various vesting periods.

Settlement of Pullar Lawsuit

On May 5, 2022, Robert Pullar (“Pullar”) filed a lawsuit against urban-gro and Bradley Nattrass, in his capacity as the Company’s CEO, relating to a prior settlement agreement the Company had entered into with Pullar. On Friday, January 31, 2025, the parties entered a settlement agreement, without any admission of liability or wrongdoing, to settle all claims associated with the litigation in exchange for a cash payment by the Company to Pullar of $250,000 and an issuance of a warrant to purchase up to 75,000 shares of common stock with an exercise price per share of $1.00.